Correlation Between MI Homes and Analog Devices

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

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

Diversification Opportunities for MI Homes and Analog Devices

0.45

Correlation Coefficient

MI Homes  Analog Devices

Very weak diversification

The 3 months correlation between MHO and Analog is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and MI Homes 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 MI Homes are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of MI Homes i.e., MI Homes and Analog Devices go up and down completely randomly.

Pair Corralation between MI Homes and Analog Devices

Considering the 90-day investment horizon MI Homes is expected to under-perform the Analog Devices. In addition to that, MI Homes is 1.31 times more volatile than Analog Devices. It trades about -0.02 of its total potential returns per unit of risk. Analog Devices is currently generating about 0.13 per unit of volatility. If you would invest  20,877  in Analog Devices on September 18, 2024 and sell it today you would earn a total of  754.00  from holding Analog Devices or generate 3.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

MI Homes  vs.  Analog Devices

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.

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with MI Homes and Analog Devices

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

The idea behind MI Homes and Analog Devices 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.