Correlation Between United Natural and Meritage Homes

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

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

Diversification Opportunities for United Natural and Meritage Homes

-0.04

Correlation Coefficient

United Natural  Meritage Homes

Good diversification

The 3 months correlation between United and Meritage is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding United Natural Foods and Meritage Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage Homes and United Natural 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 United Natural Foods 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 United Natural i.e., United Natural and Meritage Homes go up and down completely randomly.

Pair Corralation between United Natural and Meritage Homes

Assuming the 90 days horizon United Natural Foods is expected to under-perform the Meritage Homes. But the stock apears to be less risky and, when comparing its historical volatility, United Natural Foods is 4.42 times less risky than Meritage Homes. The stock trades about 0.0 of its potential returns per unit of risk. The Meritage Homes is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  7,354  in Meritage Homes on December 21, 2024 and sell it today you would lose (1,004) from holding Meritage Homes or give up 13.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

United Natural Foods  vs.  Meritage Homes

United Natural Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Natural Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, United Natural is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Meritage Homes

Risk-Adjusted Performance

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 United Natural and Meritage Homes

The main advantage of trading using opposite United Natural and Meritage Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Natural 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 United Natural Foods 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.