Correlation Between American Homes and Siemens Energy

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

Diversification Opportunities for American Homes and Siemens Energy

0.53

Correlation Coefficient

American Homes  Siemens Energy

Very weak diversification

The 3 months correlation between American and Siemens is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Siemens Energy AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siemens Energy AG 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 Siemens Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siemens Energy AG has no effect on the direction of American Homes i.e., American Homes and Siemens Energy go up and down completely randomly.

Pair Corralation between American Homes and Siemens Energy

Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the Siemens Energy. But the stock apears to be less risky and, when comparing its historical volatility, American Homes 4 is 1.46 times less risky than Siemens Energy. The stock trades about -0.01 of its potential returns per unit of risk. The Siemens Energy AG is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,925  in Siemens Energy AG on September 24, 2024 and sell it today you would earn a total of  145.00  from holding Siemens Energy AG or generate 2.94% return on investment over 90 days.

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

American Homes 4  vs.  Siemens Energy AG

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Siemens Energy AG

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Siemens Energy AG are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Siemens Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Homes and Siemens Energy

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

The idea behind American Homes 4 and Siemens Energy AG 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.