Correlation Between American Homes and CAIRN HOMES

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

Diversification Opportunities for American Homes and CAIRN HOMES

0.24

Correlation Coefficient

American Homes  CAIRN HOMES

Modest diversification

The 3 months correlation between American and CAIRN is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and CAIRN HOMES EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAIRN HOMES EO 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 CAIRN HOMES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAIRN HOMES EO has no effect on the direction of American Homes i.e., American Homes and CAIRN HOMES go up and down completely randomly.

Pair Corralation between American Homes and CAIRN HOMES

Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the CAIRN HOMES. But the stock apears to be less risky and, when comparing its historical volatility, American Homes 4 is 2.02 times less risky than CAIRN HOMES. The stock trades about -0.1 of its potential returns per unit of risk. The CAIRN HOMES EO is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  215.00  in CAIRN HOMES EO on October 9, 2024 and sell it today you would earn a total of  21.00  from holding CAIRN HOMES EO or generate 9.77% return on investment over 90 days.

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

American Homes 4  vs.  CAIRN HOMES EO

American Homes 4

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 3 (%) 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.

CAIRN HOMES EO

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CAIRN HOMES EO are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CAIRN HOMES reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Homes and CAIRN HOMES

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

The idea behind American Homes 4 and CAIRN HOMES EO 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.