Correlation Between American Homes and Benchmark Electronics

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

Diversification Opportunities for American Homes and Benchmark Electronics

0.19

Correlation Coefficient

American Homes  Benchmark Electronics

Average diversification

The 3 months correlation between American and Benchmark is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Benchmark Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Electronics 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 Benchmark Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Electronics has no effect on the direction of American Homes i.e., American Homes and Benchmark Electronics go up and down completely randomly.

Pair Corralation between American Homes and Benchmark Electronics

Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the Benchmark Electronics. But the stock apears to be less risky and, when comparing its historical volatility, American Homes 4 is 1.31 times less risky than Benchmark Electronics. The stock trades about -0.01 of its potential returns per unit of risk. The Benchmark Electronics is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,044  in Benchmark Electronics on October 25, 2024 and sell it today you would earn a total of  636.00  from holding Benchmark Electronics or generate 15.73% return on investment over 90 days.

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

American Homes 4  vs.  Benchmark Electronics

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.

Benchmark Electronics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Benchmark Electronics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Homes and Benchmark Electronics

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

The idea behind American Homes 4 and Benchmark Electronics 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.