Correlation Between American Homes and Xeros Technology

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

Diversification Opportunities for American Homes and Xeros Technology

0.24

Correlation Coefficient

American Homes  Xeros Technology

Modest diversification

The 3 months correlation between American and Xeros is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Xeros Technology Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xeros Technology 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 Xeros Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xeros Technology has no effect on the direction of American Homes i.e., American Homes and Xeros Technology go up and down completely randomly.

Pair Corralation between American Homes and Xeros Technology

Assuming the 90 days trading horizon American Homes 4 is expected to generate 0.32 times more return on investment than Xeros Technology. However, American Homes 4 is 3.15 times less risky than Xeros Technology. It trades about 0.03 of its potential returns per unit of risk. Xeros Technology Group is currently generating about -0.1 per unit of risk. If you would invest  3,121  in American Homes 4 on October 11, 2024 and sell it today you would earn a total of  472.00  from holding American Homes 4 or generate 15.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.52%
Values	Daily Returns

American Homes 4  vs.  Xeros Technology Group

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.

Xeros Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xeros Technology Group 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 Xeros Technology

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

The idea behind American Homes 4 and Xeros Technology Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.