Correlation Between CITY OFFICE and Meritage Homes

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

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

Diversification Opportunities for CITY OFFICE and Meritage Homes

0.3

Correlation Coefficient

CITY OFFICE  Meritage Homes

Weak diversification

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

Pair Corralation between CITY OFFICE and Meritage Homes

Assuming the 90 days horizon CITY OFFICE REIT is expected to generate 0.79 times more return on investment than Meritage Homes. However, CITY OFFICE REIT is 1.26 times less risky than Meritage Homes. It trades about 0.07 of its potential returns per unit of risk. Meritage Homes is currently generating about 0.01 per unit of risk. If you would invest  430.00  in CITY OFFICE REIT on April 24, 2025 and sell it today you would earn a total of  32.00  from holding CITY OFFICE REIT or generate 7.44% return on investment over 90 days.

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

CITY OFFICE REIT  vs.  Meritage Homes

CITY OFFICE REIT

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CITY OFFICE REIT are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CITY OFFICE may actually be approaching a critical reversion point that can send shares even higher in August 2025.

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 CITY OFFICE and Meritage Homes

The main advantage of trading using opposite CITY OFFICE and Meritage Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CITY OFFICE 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 CITY OFFICE REIT 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.