Correlation Between American Homes and SBM Offshore

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

By analyzing existing cross correlation between American Homes 4 and SBM Offshore NV, you can compare the effects of market volatilities on American Homes and SBM Offshore 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 American Homes with a short position of SBM Offshore. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and SBM Offshore.

Diversification Opportunities for American Homes and SBM Offshore

-0.51

Correlation Coefficient

American Homes  SBM Offshore

Excellent diversification

The 3 months correlation between American and SBM is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and SBM Offshore NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM Offshore NV and American 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 American Homes 4 are associated (or correlated) with SBM Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM Offshore NV has no effect on the direction of American Homes i.e., American Homes and SBM Offshore go up and down completely randomly.

Pair Corralation between American Homes and SBM Offshore

Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the SBM Offshore. But the stock apears to be less risky and, when comparing its historical volatility, American Homes 4 is 1.31 times less risky than SBM Offshore. The stock trades about -0.11 of its potential returns per unit of risk. The SBM Offshore NV is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,666  in SBM Offshore NV on October 25, 2024 and sell it today you would earn a total of  145.00  from holding SBM Offshore NV or generate 8.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.08%
Values	Daily Returns

American Homes 4  vs.  SBM Offshore NV

American Homes 4

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Homes 4 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

SBM Offshore NV

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, SBM Offshore may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with American Homes and SBM Offshore

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

The idea behind American Homes 4 and SBM Offshore NV 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.