Correlation Between American Homes and Indus Gas

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

Diversification Opportunities for American Homes and Indus Gas

0.17

Correlation Coefficient

American Homes  Indus Gas

Average diversification

The 3 months correlation between American and Indus is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Indus Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indus Gas 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 Indus Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indus Gas has no effect on the direction of American Homes i.e., American Homes and Indus Gas go up and down completely randomly.

Pair Corralation between American Homes and Indus Gas

Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the Indus Gas. But the stock apears to be less risky and, when comparing its historical volatility, American Homes 4 is 104.85 times less risky than Indus Gas. The stock trades about -0.01 of its potential returns per unit of risk. The Indus Gas is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  14.00  in Indus Gas on September 13, 2024 and sell it today you would lose (7.00) from holding Indus Gas or give up 50.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

American Homes 4  vs.  Indus Gas

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. 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.

Indus Gas

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Indus Gas are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Indus Gas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Homes and Indus Gas

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

The idea behind American Homes 4 and Indus Gas 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.