Correlation Between MDC Holdings and MI Homes

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

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

Diversification Opportunities for MDC Holdings and MI Homes

-0.03

Correlation Coefficient

MDC Holdings  MI Homes

Good diversification

The 3 months correlation between MDC and MHO is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding MDC Holdings and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes and MDC Holdings 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 MDC Holdings 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 MDC Holdings i.e., MDC Holdings and MI Homes go up and down completely randomly.

Pair Corralation between MDC Holdings and MI Homes

Considering the 90-day investment horizon MDC Holdings is expected to generate 2.47 times less return on investment than MI Homes. But when comparing it to its historical volatility, MDC Holdings is 19.58 times less risky than MI Homes. It trades about 0.26 of its potential returns per unit of risk. MI Homes is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  11,945  in MI Homes on February 13, 2024 and sell it today you would earn a total of  378.00  from holding MI Homes or generate 3.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	74.6%
Values	Daily Returns

MDC Holdings  vs.  MI Homes

MDC Holdings

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days MDC Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, MDC Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

MI Homes

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MI Homes are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical indicators, MI Homes is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MDC Holdings and MI Homes

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

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.