Correlation Between BRP and MI Homes

Can any of the company-specific risk be diversified away by investing in both BRP 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 BRP and MI Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BRP Inc and MI Homes, you can compare the effects of market volatilities on BRP 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 BRP with a short position of MI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRP and MI Homes.

Diversification Opportunities for BRP and MI Homes

0.63

Correlation Coefficient

BRP  MI Homes

Poor diversification

The 3 months correlation between BRP and MHO is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and BRP 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 BRP Inc 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 BRP i.e., BRP and MI Homes go up and down completely randomly.

Pair Corralation between BRP and MI Homes

Given the investment horizon of 90 days BRP Inc is expected to generate 1.34 times more return on investment than MI Homes. However, BRP is 1.34 times more volatile than MI Homes. It trades about 0.12 of its potential returns per unit of risk. MI Homes is currently generating about -0.07 per unit of risk. If you would invest  4,865  in BRP Inc on September 20, 2024 and sell it today you would earn a total of  313.00  from holding BRP Inc or generate 6.43% return on investment over 90 days.

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

BRP Inc  vs.  MI Homes

BRP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

MI Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with BRP and MI Homes

The main advantage of trading using opposite BRP and MI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRP 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 BRP Inc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.