Correlation Between Meritage and Barratt Developments

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

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

Diversification Opportunities for Meritage and Barratt Developments

-0.24

Correlation Coefficient

Meritage  Barratt Developments

Very good diversification

The 3 months correlation between Meritage and Barratt is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and Barratt Developments plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barratt Developments plc 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 Barratt Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barratt Developments plc has no effect on the direction of Meritage i.e., Meritage and Barratt Developments go up and down completely randomly.

Pair Corralation between Meritage and Barratt Developments

Considering the 90-day investment horizon Meritage is expected to under-perform the Barratt Developments. But the stock apears to be less risky and, when comparing its historical volatility, Meritage is 1.19 times less risky than Barratt Developments. The stock trades about -0.03 of its potential returns per unit of risk. The Barratt Developments plc is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  546.00  in Barratt Developments plc on December 29, 2024 and sell it today you would lose (8.00) from holding Barratt Developments plc or give up 1.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.16%
Values	Daily Returns

Meritage  vs.  Barratt Developments plc

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 newest stock price confusion, may contribute to short-horizon losses for the traders.

Barratt Developments plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Barratt Developments plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Barratt Developments is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Meritage and Barratt Developments

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

The idea behind Meritage and Barratt Developments plc 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.