Correlation Between MI Homes and SkyWest

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

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

Diversification Opportunities for MI Homes and SkyWest

-0.42

Correlation Coefficient

MI Homes  SkyWest

Very good diversification

The 3 months correlation between MHO and SkyWest is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and SkyWest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SkyWest 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 SkyWest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SkyWest has no effect on the direction of MI Homes i.e., MI Homes and SkyWest go up and down completely randomly.

Pair Corralation between MI Homes and SkyWest

Considering the 90-day investment horizon MI Homes is expected to generate 1.63 times less return on investment than SkyWest. But when comparing it to its historical volatility, MI Homes is 1.09 times less risky than SkyWest. It trades about 0.11 of its potential returns per unit of risk. SkyWest is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,651  in SkyWest on September 20, 2024 and sell it today you would earn a total of  8,587  from holding SkyWest or generate 520.11% return on investment over 90 days.

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

MI Homes  vs.  SkyWest

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 uncertain performance in the last few months, the Stock's technical 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.

SkyWest

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SkyWest are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, SkyWest showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MI Homes and SkyWest

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

The idea behind MI Homes and SkyWest 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.