Correlation Between American Homes and JD SPORTS

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

Diversification Opportunities for American Homes and JD SPORTS

-0.46

Correlation Coefficient

American Homes  JD SPORTS

Very good diversification

The 3 months correlation between American and 9JD is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and JD SPORTS FASH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD SPORTS FASH 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 JD SPORTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD SPORTS FASH has no effect on the direction of American Homes i.e., American Homes and JD SPORTS go up and down completely randomly.

Pair Corralation between American Homes and JD SPORTS

Assuming the 90 days trading horizon American Homes 4 is expected to generate 0.64 times more return on investment than JD SPORTS. However, American Homes 4 is 1.57 times less risky than JD SPORTS. It trades about 0.07 of its potential returns per unit of risk. JD SPORTS FASH is currently generating about -0.26 per unit of risk. If you would invest  3,316  in American Homes 4 on September 30, 2024 and sell it today you would earn a total of  224.00  from holding American Homes 4 or generate 6.76% return on investment over 90 days.

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

American Homes 4  vs.  JD SPORTS FASH

American Homes 4

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Homes may actually be approaching a critical reversion point that can send shares even higher in January 2025.

JD SPORTS FASH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD SPORTS FASH 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with American Homes and JD SPORTS

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

The idea behind American Homes 4 and JD SPORTS FASH 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.