Correlation Between Public Storage and American Homes

Can any of the company-specific risk be diversified away by investing in both Public Storage and American Homes 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 Public Storage and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Public Storage and American Homes 4, you can compare the effects of market volatilities on Public Storage and American Homes 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 Public Storage with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Public Storage and American Homes.

Diversification Opportunities for Public Storage and American Homes

0.59

Correlation Coefficient

Public Storage  American Homes

Very weak diversification

The 3 months correlation between Public and American is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Public Storage and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 and Public Storage 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 Public Storage are associated (or correlated) with American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of Public Storage i.e., Public Storage and American Homes go up and down completely randomly.

Pair Corralation between Public Storage and American Homes

Assuming the 90 days trading horizon Public Storage is expected to generate 1.72 times less return on investment than American Homes. In addition to that, Public Storage is 1.06 times more volatile than American Homes 4. It trades about 0.03 of its total potential returns per unit of risk. American Homes 4 is currently generating about 0.05 per unit of volatility. If you would invest  2,869  in American Homes 4 on December 4, 2024 and sell it today you would earn a total of  894.00  from holding American Homes 4 or generate 31.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	91.6%
Values	Daily Returns

Public Storage  vs.  American Homes 4

Public Storage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Public Storage 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.

American Homes 4

Risk-Adjusted Performance

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Public Storage and American Homes

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

The idea behind Public Storage and American Homes 4 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.