Correlation Between MidCap Financial and Meritage Homes

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

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

Diversification Opportunities for MidCap Financial and Meritage Homes

0.3

Correlation Coefficient

MidCap Financial  Meritage Homes

Weak diversification

The 3 months correlation between MidCap and Meritage is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and Meritage Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meritage Homes and MidCap Financial 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 MidCap Financial Investment 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 MidCap Financial i.e., MidCap Financial and Meritage Homes go up and down completely randomly.

Pair Corralation between MidCap Financial and Meritage Homes

Assuming the 90 days trading horizon MidCap Financial Investment is expected to generate 0.6 times more return on investment than Meritage Homes. However, MidCap Financial Investment is 1.67 times less risky than Meritage Homes. It trades about 0.12 of its potential returns per unit of risk. Meritage Homes is currently generating about 0.01 per unit of risk. If you would invest  1,010  in MidCap Financial Investment on April 24, 2025 and sell it today you would earn a total of  101.00  from holding MidCap Financial Investment or generate 10.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

MidCap Financial Investment  vs.  Meritage Homes

MidCap Financial Inv

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MidCap Financial may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Meritage Homes

Risk-Adjusted Performance

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 MidCap Financial and Meritage Homes

The main advantage of trading using opposite MidCap Financial and Meritage Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MidCap Financial 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 MidCap Financial Investment 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.