Correlation Between Sea and MI Homes

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

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

Diversification Opportunities for Sea and MI Homes

-0.4

Correlation Coefficient

Sea  MI Homes

Very good diversification

The 3 months correlation between Sea and MHO is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Sea and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and Sea 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 Sea 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 Sea i.e., Sea and MI Homes go up and down completely randomly.

Pair Corralation between Sea and MI Homes

Allowing for the 90-day total investment horizon Sea is expected to generate 1.13 times less return on investment than MI Homes. In addition to that, Sea is 1.47 times more volatile than MI Homes. It trades about 0.06 of its total potential returns per unit of risk. MI Homes is currently generating about 0.1 per unit of volatility. If you would invest  4,717  in MI Homes on September 23, 2024 and sell it today you would earn a total of  8,680  from holding MI Homes or generate 184.02% return on investment over 90 days.

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

Sea  vs.  MI Homes

Sea

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

MI Homes

Risk-Adjusted Performance

0 of 100

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 inconsistent performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Sea and MI Homes

The main advantage of trading using opposite Sea and MI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sea 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 Sea 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..