Correlation Between Talanx AG and Meritage Homes

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

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

Diversification Opportunities for Talanx AG and Meritage Homes

-0.81

Correlation Coefficient

Talanx AG  Meritage Homes

Pay attention - limited upside

The 3 months correlation between Talanx and Meritage is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Talanx AG and Meritage Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage Homes and Talanx AG 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 Talanx AG 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 Talanx AG i.e., Talanx AG and Meritage Homes go up and down completely randomly.

Pair Corralation between Talanx AG and Meritage Homes

Assuming the 90 days horizon Talanx AG is expected to generate 0.63 times more return on investment than Meritage Homes. However, Talanx AG is 1.58 times less risky than Meritage Homes. It trades about 0.24 of its potential returns per unit of risk. Meritage Homes is currently generating about -0.09 per unit of risk. If you would invest  7,905  in Talanx AG on December 20, 2024 and sell it today you would earn a total of  1,660  from holding Talanx AG or generate 21.0% return on investment over 90 days.

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

Talanx AG  vs.  Meritage Homes

Talanx AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Talanx AG are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Talanx AG reported solid returns over the last few months and may actually be approaching a breakup point.

Meritage Homes

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Talanx AG and Meritage Homes

The main advantage of trading using opposite Talanx AG and Meritage Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Talanx AG 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 Talanx AG 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.