Correlation Between NVR and Meritage

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

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

Diversification Opportunities for NVR and Meritage

0.98

Correlation Coefficient

NVR  Meritage

Almost no diversification

The 3 months correlation between NVR and Meritage is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding NVR Inc and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage and NVR 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 NVR Inc are associated (or correlated) with Meritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage has no effect on the direction of NVR i.e., NVR and Meritage go up and down completely randomly.

Pair Corralation between NVR and Meritage

Considering the 90-day investment horizon NVR Inc is expected to under-perform the Meritage. But the stock apears to be less risky and, when comparing its historical volatility, NVR Inc is 1.59 times less risky than Meritage. The stock trades about -0.14 of its potential returns per unit of risk. The Meritage is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  9,160  in Meritage on October 22, 2024 and sell it today you would lose (1,102) from holding Meritage or give up 12.03% of portfolio value over 90 days.

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

NVR Inc  vs.  Meritage

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 latest unfluctuating performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

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 latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with NVR and Meritage

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

The idea behind NVR Inc and Meritage 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.