Correlation Between Neinor Homes and American Homes

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

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

Diversification Opportunities for Neinor Homes and American Homes

-0.02

Correlation Coefficient

Neinor Homes  American Homes

Good diversification

The 3 months correlation between Neinor and American is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Neinor Homes SA 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 Neinor 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 Neinor Homes SA 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 Neinor Homes i.e., Neinor Homes and American Homes go up and down completely randomly.

Pair Corralation between Neinor Homes and American Homes

Assuming the 90 days trading horizon Neinor Homes SA is expected to under-perform the American Homes. In addition to that, Neinor Homes is 1.13 times more volatile than American Homes 4. It trades about -0.05 of its total potential returns per unit of risk. American Homes 4 is currently generating about -0.03 per unit of volatility. If you would invest  3,509  in American Homes 4 on December 24, 2024 and sell it today you would lose (149.00) from holding American Homes 4 or give up 4.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Neinor Homes SA  vs.  American Homes 4

Neinor Homes SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Neinor Homes SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile 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. Despite nearly stable basic indicators, American Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Neinor Homes and American Homes

The main advantage of trading using opposite Neinor Homes and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Neinor Homes 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 Neinor Homes SA 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.