Correlation Between NVR and Meritage
Can any of the company-specific risk be diversified away by investing in both NVR and Meritage 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 NVR and Meritage into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NVR Inc and Meritage, you can compare the effects of market volatilities on NVR and Meritage 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 NVR with a short position of Meritage. Check out your portfolio center. Please also check ongoing floating volatility patterns of NVR and Meritage.
Diversification Opportunities for NVR and Meritage
Modest diversification
The 3 months correlation between NVR and Meritage is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding NVR Inc and Meritage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage and NVR 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 NVR Inc are associated (or correlated) with Meritage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meritage has no effect on the direction of NVR i.e., NVR and Meritage go up and down completely randomly.
Pair Corralation between NVR and Meritage
Considering the 90-day investment horizon NVR Inc is expected to generate 0.62 times more return on investment than Meritage. However, NVR Inc is 1.62 times less risky than Meritage. It trades about -0.02 of its potential returns per unit of risk. Meritage is currently generating about -0.14 per unit of risk. If you would invest 786,500 in NVR Inc on January 26, 2024 and sell it today you would lose (6,672) from holding NVR Inc or give up 0.85% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
NVR Inc vs. Meritage
Performance |
| Timeline |
| NVR Inc |
| Meritage |
NVR and Meritage Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NVR and Meritage
The main advantage of trading using opposite NVR and Meritage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVR position performs unexpectedly, Meritage 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 will offset losses from the drop in Meritage's long position.The idea behind NVR Inc and Meritage 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.| Meritage vs. TRI Pointe Homes | Meritage vs. MI Homes | Meritage vs. Beazer Homes USA | Meritage vs. Century Communities |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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