Correlation Between Cavco Industries and MI Homes

Can any of the company-specific risk be diversified away by investing in both Cavco Industries and MI Homes at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Cavco Industries and MI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cavco Industries and MI Homes, you can compare the effects of market volatilities on Cavco Industries and MI Homes and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Cavco Industries with a short position of MI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cavco Industries and MI Homes.

Diversification Opportunities for Cavco Industries and MI Homes

0.21

Correlation Coefficient

Cavco Industries  MI Homes

Modest diversification

The 3 months correlation between Cavco and MHO is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Cavco Industries and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and Cavco Industries is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Cavco Industries are associated (or correlated) with MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of Cavco Industries i.e., Cavco Industries and MI Homes go up and down completely randomly.

Pair Corralation between Cavco Industries and MI Homes

Given the investment horizon of 90 days Cavco Industries is expected to generate 0.96 times more return on investment than MI Homes. However, Cavco Industries is 1.04 times less risky than MI Homes. It trades about 0.2 of its potential returns per unit of risk. MI Homes is currently generating about 0.06 per unit of risk. If you would invest  39,907  in Cavco Industries on September 4, 2024 and sell it today you would earn a total of  12,036  from holding Cavco Industries or generate 30.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Cavco Industries  vs.  MI Homes

Cavco Industries

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cavco Industries are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile fundamental indicators, Cavco Industries displayed solid returns over the last few months and may actually be approaching a breakup point.

MI Homes

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MI Homes are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical indicators, MI Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cavco Industries and MI Homes

The main advantage of trading using opposite Cavco Industries and MI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cavco Industries position performs unexpectedly, MI Homes can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in MI Homes will offset losses from the drop in MI Homes' long position.

The idea behind Cavco Industries and MI Homes pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.