Correlation Between Meritage and Sonos

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

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

Diversification Opportunities for Meritage and Sonos

-0.72

Correlation Coefficient

Meritage  Sonos

Pay attention - limited upside

The 3 months correlation between Meritage and Sonos is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and Sonos Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonos 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 Sonos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonos Inc has no effect on the direction of Meritage i.e., Meritage and Sonos go up and down completely randomly.

Pair Corralation between Meritage and Sonos

Considering the 90-day investment horizon Meritage is expected to generate 0.81 times more return on investment than Sonos. However, Meritage is 1.24 times less risky than Sonos. It trades about 0.05 of its potential returns per unit of risk. Sonos Inc is currently generating about 0.0 per unit of risk. If you would invest  4,836  in Meritage on October 7, 2024 and sell it today you would earn a total of  2,736  from holding Meritage or generate 56.58% return on investment over 90 days.

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

Meritage  vs.  Sonos 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.

Sonos Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sonos Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Sonos displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Meritage and Sonos

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

The idea behind Meritage and Sonos 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.