Correlation Between American Homes and National Storage

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

Diversification Opportunities for American Homes and National Storage

0.21

Correlation Coefficient

American Homes  National Storage

Modest diversification

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

Pair Corralation between American Homes and National Storage

Assuming the 90 days trading horizon American Homes 4 is expected to generate 1.06 times more return on investment than National Storage. However, American Homes is 1.06 times more volatile than National Storage Affiliates. It trades about -0.07 of its potential returns per unit of risk. National Storage Affiliates is currently generating about -0.59 per unit of risk. If you would invest  3,535  in American Homes 4 on October 4, 2024 and sell it today you would lose (75.00) from holding American Homes 4 or give up 2.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

American Homes 4  vs.  National Storage Affiliates

American Homes 4

Risk-Adjusted Performance

2 of 100

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. 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.

National Storage Aff

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Storage Affiliates has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with American Homes and National Storage

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

The idea behind American Homes 4 and National Storage Affiliates 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 CEOs Directory module to screen CEOs from public companies around the world.