Correlation Between American Homes and Rightmove PLC

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

Diversification Opportunities for American Homes and Rightmove PLC

0.11

Correlation Coefficient

American Homes  Rightmove PLC

Average diversification

The 3 months correlation between American and Rightmove is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Rightmove PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rightmove 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 Rightmove PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rightmove PLC has no effect on the direction of American Homes i.e., American Homes and Rightmove PLC go up and down completely randomly.

Pair Corralation between American Homes and Rightmove PLC

Assuming the 90 days trading horizon American Homes is expected to generate 1.31 times less return on investment than Rightmove PLC. But when comparing it to its historical volatility, American Homes 4 is 1.5 times less risky than Rightmove PLC. It trades about 0.02 of its potential returns per unit of risk. Rightmove PLC is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  59,340  in Rightmove PLC on October 24, 2024 and sell it today you would earn a total of  5,400  from holding Rightmove PLC or generate 9.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	87.32%
Values	Daily Returns

American Homes 4  vs.  Rightmove 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 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.

Rightmove PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rightmove PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Rightmove PLC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Homes and Rightmove PLC

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

The idea behind American Homes 4 and Rightmove 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.