Correlation Between TYSON FOODS and Meritage Homes

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

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

Diversification Opportunities for TYSON FOODS and Meritage Homes

0.02

Correlation Coefficient

TYSON FOODS  Meritage Homes

Significant diversification

The 3 months correlation between TYSON and Meritage is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding TYSON FOODS A and Meritage Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage Homes and TYSON FOODS 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 TYSON FOODS A are associated (or correlated) with Meritage Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage Homes has no effect on the direction of TYSON FOODS i.e., TYSON FOODS and Meritage Homes go up and down completely randomly.

Pair Corralation between TYSON FOODS and Meritage Homes

Assuming the 90 days trading horizon TYSON FOODS is expected to generate 23.86 times less return on investment than Meritage Homes. But when comparing it to its historical volatility, TYSON FOODS A is 3.52 times less risky than Meritage Homes. It trades about 0.01 of its potential returns per unit of risk. Meritage Homes is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  4,373  in Meritage Homes on October 11, 2024 and sell it today you would earn a total of  2,977  from holding Meritage Homes or generate 68.08% return on investment over 90 days.

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

TYSON FOODS A   vs.  Meritage Homes

TYSON FOODS A

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TYSON FOODS A are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, TYSON FOODS is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Meritage Homes

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Meritage Homes are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Meritage Homes unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TYSON FOODS and Meritage Homes

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

The idea behind TYSON FOODS A and Meritage 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.