Correlation Between American Homes and Microlise Group

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

Diversification Opportunities for American Homes and Microlise Group

-0.21

Correlation Coefficient

American Homes  Microlise Group

Very good diversification

The 3 months correlation between American and Microlise is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Microlise Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microlise Group 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 Microlise Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microlise Group PLC has no effect on the direction of American Homes i.e., American Homes and Microlise Group go up and down completely randomly.

Pair Corralation between American Homes and Microlise Group

Assuming the 90 days trading horizon American Homes is expected to generate 6.02 times less return on investment than Microlise Group. But when comparing it to its historical volatility, American Homes 4 is 3.02 times less risky than Microlise Group. It trades about 0.04 of its potential returns per unit of risk. Microlise Group PLC is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9,650  in Microlise Group PLC on December 30, 2024 and sell it today you would earn a total of  1,600  from holding Microlise Group PLC or generate 16.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.38%
Values	Daily Returns

American Homes 4  vs.  Microlise Group PLC

American Homes 4

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, American Homes is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Microlise Group PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Microlise Group PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Microlise Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Homes and Microlise Group

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

The idea behind American Homes 4 and Microlise Group 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.