Correlation Between MDC Holdings and Meritage

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

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

Diversification Opportunities for MDC Holdings and Meritage

-0.49

Correlation Coefficient

MDC Holdings  Meritage

Very good diversification

The 3 months correlation between MDC and Meritage is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding MDC Holdings and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage and MDC Holdings 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 MDC Holdings are associated (or correlated) with Meritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage has no effect on the direction of MDC Holdings i.e., MDC Holdings and Meritage go up and down completely randomly.

Pair Corralation between MDC Holdings and Meritage

If you would invest  18,956  in Meritage on September 4, 2024 and sell it today you would earn a total of  99.00  from holding Meritage or generate 0.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	1.56%
Values	Daily Returns

MDC Holdings  vs.  Meritage

MDC Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Meritage

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Meritage are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Meritage is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with MDC Holdings and Meritage

The main advantage of trading using opposite MDC Holdings and Meritage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MDC Holdings position performs unexpectedly, Meritage 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 Meritage will offset losses from the drop in Meritage's long position.

The idea behind MDC Holdings and Meritage 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.