Correlation Between Floor Decor and MI Homes

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

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

Diversification Opportunities for Floor Decor and MI Homes

0.54

Correlation Coefficient

Floor Decor  MI Homes

Very weak diversification

The 3 months correlation between Floor and MHO is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Floor Decor Holdings and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and Floor Decor 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 Floor Decor Holdings 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 Floor Decor i.e., Floor Decor and MI Homes go up and down completely randomly.

Pair Corralation between Floor Decor and MI Homes

Considering the 90-day investment horizon Floor Decor is expected to generate 2.22 times less return on investment than MI Homes. In addition to that, Floor Decor is 1.05 times more volatile than MI Homes. It trades about 0.05 of its total potential returns per unit of risk. MI Homes is currently generating about 0.12 per unit of volatility. If you would invest  4,654  in MI Homes on September 15, 2024 and sell it today you would earn a total of  10,903  from holding MI Homes or generate 234.27% return on investment over 90 days.

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

Floor Decor Holdings  vs.  MI Homes

Floor Decor Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Floor Decor Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Floor Decor is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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 very healthy technical indicators, MI Homes is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Floor Decor and MI Homes

The main advantage of trading using opposite Floor Decor and MI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Floor Decor 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 Floor Decor Holdings 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 CEOs Directory module to screen CEOs from public companies around the world.