Correlation Between American Homes and Worldwide Healthcare

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

Diversification Opportunities for American Homes and Worldwide Healthcare

-0.55

Correlation Coefficient

American Homes  Worldwide Healthcare

Excellent diversification

The 3 months correlation between American and Worldwide is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Worldwide Healthcare Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Worldwide Healthcare 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 Worldwide Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Worldwide Healthcare has no effect on the direction of American Homes i.e., American Homes and Worldwide Healthcare go up and down completely randomly.

Pair Corralation between American Homes and Worldwide Healthcare

Assuming the 90 days trading horizon American Homes 4 is expected to generate 1.3 times more return on investment than Worldwide Healthcare. However, American Homes is 1.3 times more volatile than Worldwide Healthcare Trust. It trades about 0.04 of its potential returns per unit of risk. Worldwide Healthcare Trust is currently generating about -0.07 per unit of risk. If you would invest  3,635  in American Homes 4 on December 30, 2024 and sell it today you would earn a total of  97.00  from holding American Homes 4 or generate 2.67% return on investment over 90 days.

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

American Homes 4  vs.  Worldwide Healthcare Trust

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.

Worldwide Healthcare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Worldwide Healthcare Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Worldwide Healthcare 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 Worldwide Healthcare

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

The idea behind American Homes 4 and Worldwide Healthcare Trust 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.