Correlation Between Meritage and Skyline

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

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

Diversification Opportunities for Meritage and Skyline

0.35

Correlation Coefficient

Meritage  Skyline

Weak diversification

The 3 months correlation between Meritage and Skyline is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and Skyline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Skyline 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 Skyline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Skyline has no effect on the direction of Meritage i.e., Meritage and Skyline go up and down completely randomly.

Pair Corralation between Meritage and Skyline

Considering the 90-day investment horizon Meritage is expected to under-perform the Skyline. But the stock apears to be less risky and, when comparing its historical volatility, Meritage is 1.15 times less risky than Skyline. The stock trades about -0.13 of its potential returns per unit of risk. The Skyline is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,092  in Skyline on December 3, 2024 and sell it today you would earn a total of  1,158  from holding Skyline or generate 12.74% return on investment over 90 days.

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

Meritage  vs.  Skyline

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 inconsistent performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Skyline

Risk-Adjusted Performance

Very Weak

Over the last 90 days Skyline has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Skyline is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Meritage and Skyline

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

The idea behind Meritage and Skyline 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.