Correlation Between Meritage Homes and CHAMPION IRON

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

By analyzing existing cross correlation between Meritage Homes and CHAMPION IRON, you can compare the effects of market volatilities on Meritage Homes and CHAMPION IRON 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 CHAMPION IRON. Check out your portfolio center. Please also check ongoing floating volatility patterns of Meritage Homes and CHAMPION IRON.

Diversification Opportunities for Meritage Homes and CHAMPION IRON

0.67

Correlation Coefficient

Meritage Homes  CHAMPION IRON

Poor diversification

The 3 months correlation between Meritage and CHAMPION is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Meritage Homes and CHAMPION IRON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHAMPION IRON 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 CHAMPION IRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHAMPION IRON has no effect on the direction of Meritage Homes i.e., Meritage Homes and CHAMPION IRON go up and down completely randomly.

Pair Corralation between Meritage Homes and CHAMPION IRON

Assuming the 90 days horizon Meritage Homes is expected to generate 1.66 times less return on investment than CHAMPION IRON. But when comparing it to its historical volatility, Meritage Homes is 1.05 times less risky than CHAMPION IRON. It trades about 0.07 of its potential returns per unit of risk. CHAMPION IRON is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  222.00  in CHAMPION IRON on April 22, 2025 and sell it today you would earn a total of  40.00  from holding CHAMPION IRON or generate 18.02% return on investment over 90 days.

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

Meritage Homes  vs.  CHAMPION IRON

Meritage Homes

Risk-Adjusted Performance

Modest

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

CHAMPION IRON

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHAMPION IRON are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHAMPION IRON reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Meritage Homes and CHAMPION IRON

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

The idea behind Meritage Homes and CHAMPION IRON 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.