Correlation Between BARRATT DEVEL and Meritage Homes

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

By analyzing existing cross correlation between BARRATT DEVEL UNSPADR2 and Meritage Homes, you can compare the effects of market volatilities on BARRATT DEVEL 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 BARRATT DEVEL with a short position of Meritage Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of BARRATT DEVEL and Meritage Homes.

Diversification Opportunities for BARRATT DEVEL and Meritage Homes

-0.36

Correlation Coefficient

BARRATT DEVEL  Meritage Homes

Very good diversification

The 3 months correlation between BARRATT and Meritage is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding BARRATT DEVEL UNSPADR2 and Meritage Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage Homes and BARRATT DEVEL 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 BARRATT DEVEL UNSPADR2 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 BARRATT DEVEL i.e., BARRATT DEVEL and Meritage Homes go up and down completely randomly.

Pair Corralation between BARRATT DEVEL and Meritage Homes

Assuming the 90 days trading horizon BARRATT DEVEL UNSPADR2 is expected to under-perform the Meritage Homes. But the stock apears to be less risky and, when comparing its historical volatility, BARRATT DEVEL UNSPADR2 is 1.23 times less risky than Meritage Homes. The stock trades about -0.14 of its potential returns per unit of risk. The Meritage Homes is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5,960  in Meritage Homes on April 24, 2025 and sell it today you would lose (10.00) from holding Meritage Homes or give up 0.17% of portfolio value over 90 days.

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

BARRATT DEVEL UNSPADR2  vs.  Meritage Homes

BARRATT DEVEL UNSPADR2

Risk-Adjusted Performance

Very Weak

Over the last 90 days BARRATT DEVEL UNSPADR2 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in August 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 nearly stable basic indicators, Meritage Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BARRATT DEVEL and Meritage Homes

The main advantage of trading using opposite BARRATT DEVEL and Meritage Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BARRATT DEVEL 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 BARRATT DEVEL UNSPADR2 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.