Correlation Between Meritage and Persimmon Plc

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

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

Diversification Opportunities for Meritage and Persimmon Plc

0.65

Correlation Coefficient

Meritage  Persimmon Plc

Poor diversification

The 3 months correlation between Meritage and Persimmon is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and Persimmon Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Persimmon 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 Persimmon Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Persimmon Plc has no effect on the direction of Meritage i.e., Meritage and Persimmon Plc go up and down completely randomly.

Pair Corralation between Meritage and Persimmon Plc

Considering the 90-day investment horizon Meritage is expected to generate 1.0 times more return on investment than Persimmon Plc. However, Meritage is 1.0 times more volatile than Persimmon Plc. It trades about 0.01 of its potential returns per unit of risk. Persimmon Plc is currently generating about -0.2 per unit of risk. If you would invest  18,998  in Meritage on September 1, 2024 and sell it today you would earn a total of  109.00  from holding Meritage or generate 0.57% return on investment over 90 days.

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

Meritage  vs.  Persimmon Plc

Meritage

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Meritage are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Persimmon Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Persimmon Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Meritage and Persimmon Plc

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

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