Correlation Between Meritage Homes and MidCap Financial

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

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

Diversification Opportunities for Meritage Homes and MidCap Financial

0.28

Correlation Coefficient

Meritage Homes  MidCap Financial

Modest diversification

The 3 months correlation between Meritage and MidCap is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Meritage Homes and MidCap Financial Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MidCap Financial Inv and Meritage 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 Meritage Homes are associated (or correlated) with MidCap Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MidCap Financial Inv has no effect on the direction of Meritage Homes i.e., Meritage Homes and MidCap Financial go up and down completely randomly.

Pair Corralation between Meritage Homes and MidCap Financial

Assuming the 90 days horizon Meritage Homes is expected to generate 13.31 times less return on investment than MidCap Financial. In addition to that, Meritage Homes is 1.67 times more volatile than MidCap Financial Investment. It trades about 0.0 of its total potential returns per unit of risk. MidCap Financial Investment is currently generating about 0.1 per unit of volatility. If you would invest  1,020  in MidCap Financial Investment on April 25, 2025 and sell it today you would earn a total of  90.00  from holding MidCap Financial Investment or generate 8.82% return on investment over 90 days.

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

Meritage Homes  vs.  MidCap Financial Investment

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.

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 8 (%) 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.

Pair Trading with Meritage Homes and MidCap Financial

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

The idea behind Meritage Homes and MidCap Financial Investment 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.

Check out your portfolio center.

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.