Correlation Between Meritage and Topbuild Corp

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

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

Diversification Opportunities for Meritage and Topbuild Corp

0.82

Correlation Coefficient

Meritage  Topbuild Corp

Very poor diversification

The 3 months correlation between Meritage and Topbuild is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and Topbuild Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topbuild Corp and Meritage 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 Meritage are associated (or correlated) with Topbuild Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topbuild Corp has no effect on the direction of Meritage i.e., Meritage and Topbuild Corp go up and down completely randomly.

Pair Corralation between Meritage and Topbuild Corp

Considering the 90-day investment horizon Meritage is expected to under-perform the Topbuild Corp. But the stock apears to be less risky and, when comparing its historical volatility, Meritage is 1.02 times less risky than Topbuild Corp. The stock trades about -0.03 of its potential returns per unit of risk. The Topbuild Corp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  31,091  in Topbuild Corp on December 29, 2024 and sell it today you would lose (528.00) from holding Topbuild Corp or give up 1.7% of portfolio value over 90 days.

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

Meritage  vs.  Topbuild Corp

Meritage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meritage has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Topbuild Corp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Meritage and Topbuild Corp

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

The idea behind Meritage and Topbuild Corp 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.