Correlation Between PulteGroup and MI Homes

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

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

Diversification Opportunities for PulteGroup and MI Homes

0.85

Correlation Coefficient

PulteGroup  MI Homes

Very poor diversification

The 3 months correlation between PulteGroup and MHO is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding PulteGroup and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and PulteGroup 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 PulteGroup are associated (or correlated) with MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of PulteGroup i.e., PulteGroup and MI Homes go up and down completely randomly.

Pair Corralation between PulteGroup and MI Homes

Considering the 90-day investment horizon PulteGroup is expected to generate 0.96 times more return on investment than MI Homes. However, PulteGroup is 1.04 times less risky than MI Homes. It trades about -0.02 of its potential returns per unit of risk. MI Homes is currently generating about -0.09 per unit of risk. If you would invest  10,863  in PulteGroup on December 28, 2024 and sell it today you would lose (359.00) from holding PulteGroup or give up 3.3% of portfolio value over 90 days.

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

PulteGroup  vs.  MI Homes

PulteGroup

Risk-Adjusted Performance

Very Weak

Over the last 90 days PulteGroup has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, PulteGroup is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

MI Homes

Risk-Adjusted Performance

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with PulteGroup and MI Homes

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

The idea behind PulteGroup and MI Homes 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.