Correlation Between American Homes and Poste Italiane

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

Diversification Opportunities for American Homes and Poste Italiane

-0.39

Correlation Coefficient

American Homes  Poste Italiane

Very good diversification

The 3 months correlation between American and Poste is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Poste Italiane SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Poste Italiane SpA 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 Poste Italiane. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Poste Italiane SpA has no effect on the direction of American Homes i.e., American Homes and Poste Italiane go up and down completely randomly.

Pair Corralation between American Homes and Poste Italiane

Assuming the 90 days trading horizon American Homes is expected to generate 10.07 times less return on investment than Poste Italiane. In addition to that, American Homes is 2.15 times more volatile than Poste Italiane SpA. It trades about 0.02 of its total potential returns per unit of risk. Poste Italiane SpA is currently generating about 0.36 per unit of volatility. If you would invest  1,354  in Poste Italiane SpA on December 29, 2024 and sell it today you would earn a total of  291.00  from holding Poste Italiane SpA or generate 21.49% return on investment over 90 days.

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

American Homes 4  vs.  Poste Italiane SpA

American Homes 4

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 1 (%) 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.

Poste Italiane SpA

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Poste Italiane SpA are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Poste Italiane reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Homes and Poste Italiane

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

The idea behind American Homes 4 and Poste Italiane SpA 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.