Correlation Between MI Homes and Reservoir Media

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

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

Diversification Opportunities for MI Homes and Reservoir Media

-0.07

Correlation Coefficient

MI Homes  Reservoir Media

Good diversification

The 3 months correlation between MHO and Reservoir is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and Reservoir Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reservoir Media and MI Homes 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 MI Homes are associated (or correlated) with Reservoir Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reservoir Media has no effect on the direction of MI Homes i.e., MI Homes and Reservoir Media go up and down completely randomly.

Pair Corralation between MI Homes and Reservoir Media

Considering the 90-day investment horizon MI Homes is expected to generate 1.21 times more return on investment than Reservoir Media. However, MI Homes is 1.21 times more volatile than Reservoir Media. It trades about 0.25 of its potential returns per unit of risk. Reservoir Media is currently generating about -0.02 per unit of risk. If you would invest  11,270  in MI Homes on February 22, 2024 and sell it today you would earn a total of  1,544  from holding MI Homes or generate 13.7% return on investment over 90 days.

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

MI Homes  vs.  Reservoir Media

MI Homes

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MI Homes are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical indicators, MI Homes may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Reservoir Media

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Reservoir Media are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Reservoir Media reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MI Homes and Reservoir Media

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

The idea behind MI Homes and Reservoir Media 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.