Correlation Between American Homes and PCI PAL

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

Diversification Opportunities for American Homes and PCI PAL

-0.29

Correlation Coefficient

American Homes  PCI PAL

Very good diversification

The 3 months correlation between American and PCI is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and PCI PAL PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PCI PAL PLC 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 PCI PAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PCI PAL PLC has no effect on the direction of American Homes i.e., American Homes and PCI PAL go up and down completely randomly.

Pair Corralation between American Homes and PCI PAL

Assuming the 90 days trading horizon American Homes 4 is expected to generate 0.78 times more return on investment than PCI PAL. However, American Homes 4 is 1.27 times less risky than PCI PAL. It trades about 0.09 of its potential returns per unit of risk. PCI PAL PLC is currently generating about 0.02 per unit of risk. If you would invest  3,584  in American Homes 4 on October 7, 2024 and sell it today you would earn a total of  123.00  from holding American Homes 4 or generate 3.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.56%
Values	Daily Returns

American Homes 4  vs.  PCI PAL PLC

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.

PCI PAL PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in PCI PAL PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, PCI PAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Homes and PCI PAL

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

The idea behind American Homes 4 and PCI PAL PLC 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.