Correlation Between American Homes and Eco Animal

Can any of the company-specific risk be diversified away by investing in both American Homes and Eco Animal 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 Eco Animal 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 Eco Animal Health, you can compare the effects of market volatilities on American Homes and Eco Animal 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 Eco Animal. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Eco Animal.

Diversification Opportunities for American Homes and Eco Animal

0.17

Correlation Coefficient

American Homes  Eco Animal

Average diversification

The 3 months correlation between American and Eco is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Eco Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eco Animal Health 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 Eco Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eco Animal Health has no effect on the direction of American Homes i.e., American Homes and Eco Animal go up and down completely randomly.

Pair Corralation between American Homes and Eco Animal

Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the Eco Animal. But the stock apears to be less risky and, when comparing its historical volatility, American Homes 4 is 1.77 times less risky than Eco Animal. The stock trades about -0.13 of its potential returns per unit of risk. The Eco Animal Health is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  6,600  in Eco Animal Health on October 26, 2024 and sell it today you would lose (150.00) from holding Eco Animal Health or give up 2.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

American Homes 4  vs.  Eco Animal Health

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 uncertain 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.

Eco Animal Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eco Animal Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Eco Animal is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Homes and Eco Animal

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

The idea behind American Homes 4 and Eco Animal Health 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.