Correlation Between SL Green and MI Homes

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

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

Diversification Opportunities for SL Green and MI Homes

0.71

Correlation Coefficient

SL Green  MI Homes

Poor diversification

The 3 months correlation between SLG and MHO is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding SL Green Realty and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and SL Green 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 SL Green Realty 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 SL Green i.e., SL Green and MI Homes go up and down completely randomly.

Pair Corralation between SL Green and MI Homes

Considering the 90-day investment horizon SL Green Realty is expected to generate 1.04 times more return on investment than MI Homes. However, SL Green is 1.04 times more volatile than MI Homes. It trades about -0.09 of its potential returns per unit of risk. MI Homes is currently generating about -0.09 per unit of risk. If you would invest  6,727  in SL Green Realty on December 25, 2024 and sell it today you would lose (785.00) from holding SL Green Realty or give up 11.67% of portfolio value over 90 days.

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

SL Green Realty  vs.  MI Homes

SL Green Realty

Risk-Adjusted Performance

Very Weak

Over the last 90 days SL Green Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 SL Green and MI Homes

The main advantage of trading using opposite SL Green and MI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SL Green 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 SL Green Realty 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.

Check out your portfolio center.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.