Correlation Between MI Homes and NVR

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

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

Diversification Opportunities for MI Homes and NVR

0.67

Correlation Coefficient

MI Homes  NVR

Poor diversification

The 3 months correlation between MHO and NVR is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and NVR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVR Inc 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 NVR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NVR Inc has no effect on the direction of MI Homes i.e., MI Homes and NVR go up and down completely randomly.

Pair Corralation between MI Homes and NVR

Considering the 90-day investment horizon MI Homes is expected to under-perform the NVR. In addition to that, MI Homes is 1.29 times more volatile than NVR Inc. It trades about -0.11 of its total potential returns per unit of risk. NVR Inc is currently generating about -0.12 per unit of volatility. If you would invest  824,399  in NVR Inc on December 26, 2024 and sell it today you would lose (92,264) from holding NVR Inc or give up 11.19% of portfolio value over 90 days.

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

MI Homes  vs.  NVR Inc

MI Homes

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

NVR Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days NVR Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with MI Homes and NVR

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

The idea behind MI Homes and NVR Inc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.