Correlation Between Meritage and DR Horton

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

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

Diversification Opportunities for Meritage and DR Horton

0.79

Correlation Coefficient

Meritage  DR Horton

Poor diversification

The 3 months correlation between Meritage and DHI is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Meritage and DR Horton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DR Horton and Meritage 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 are associated (or correlated) with DR Horton. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DR Horton has no effect on the direction of Meritage i.e., Meritage and DR Horton go up and down completely randomly.

Pair Corralation between Meritage and DR Horton

Considering the 90-day investment horizon Meritage is expected to generate 2.7 times less return on investment than DR Horton. But when comparing it to its historical volatility, Meritage is 1.12 times less risky than DR Horton. It trades about 0.06 of its potential returns per unit of risk. DR Horton is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  12,277  in DR Horton on May 7, 2025 and sell it today you would earn a total of  3,051  from holding DR Horton or generate 24.85% return on investment over 90 days.

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

Meritage  vs.  DR Horton

Meritage

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Meritage are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Meritage may actually be approaching a critical reversion point that can send shares even higher in September 2025.

DR Horton

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DR Horton are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical indicators, DR Horton demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Meritage and DR Horton

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

The idea behind Meritage and DR Horton 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.