Correlation Between Meritage and NVR

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

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

Diversification Opportunities for Meritage and NVR

0.97

Correlation Coefficient

Meritage  NVR

Almost no diversification

The 3 months correlation between Meritage and NVR is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and NVR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NVR Inc 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 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 Meritage i.e., Meritage and NVR go up and down completely randomly.

Pair Corralation between Meritage and NVR

Considering the 90-day investment horizon Meritage is expected to under-perform the NVR. In addition to that, Meritage is 1.59 times more volatile than NVR Inc. It trades about -0.17 of its total potential returns per unit of risk. NVR Inc is currently generating about -0.18 per unit of volatility. If you would invest  942,174  in NVR Inc on October 7, 2024 and sell it today you would lose (135,114) from holding NVR Inc or give up 14.34% of portfolio value over 90 days.

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

Meritage  vs.  NVR Inc

Meritage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Meritage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

NVR Inc

Risk-Adjusted Performance

0 of 100

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 unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Meritage and NVR

The main advantage of trading using opposite Meritage and NVR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Meritage 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 Meritage 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.

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.