Correlation Between American Homes and Future Metals

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

Diversification Opportunities for American Homes and Future Metals

-0.12

Correlation Coefficient

American Homes  Future Metals

Good diversification

The 3 months correlation between American and Future is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Future Metals NL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Future Metals NL 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 Future Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Future Metals NL has no effect on the direction of American Homes i.e., American Homes and Future Metals go up and down completely randomly.

Pair Corralation between American Homes and Future Metals

Assuming the 90 days trading horizon American Homes 4 is expected to generate 0.39 times more return on investment than Future Metals. However, American Homes 4 is 2.56 times less risky than Future Metals. It trades about 0.03 of its potential returns per unit of risk. Future Metals NL is currently generating about -0.08 per unit of risk. If you would invest  3,390  in American Homes 4 on October 5, 2024 and sell it today you would earn a total of  299.00  from holding American Homes 4 or generate 8.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.27%
Values	Daily Returns

American Homes 4  vs.  Future Metals NL

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 comparatively stable basic indicators, American Homes is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Future Metals NL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Future Metals NL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with American Homes and Future Metals

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

The idea behind American Homes 4 and Future Metals NL 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.