Correlation Between American Homes and GigaMedia

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

Diversification Opportunities for American Homes and GigaMedia

0.39

Correlation Coefficient

American Homes  GigaMedia

Weak diversification

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

Pair Corralation between American Homes and GigaMedia

Assuming the 90 days trading horizon American Homes 4 is expected to generate 1.21 times more return on investment than GigaMedia. However, American Homes is 1.21 times more volatile than GigaMedia. It trades about 0.03 of its potential returns per unit of risk. GigaMedia is currently generating about 0.03 per unit of risk. If you would invest  3,161  in American Homes 4 on September 23, 2024 and sell it today you would earn a total of  339.00  from holding American Homes 4 or generate 10.72% 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.  GigaMedia

American Homes 4

Risk-Adjusted Performance

1 of 100

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.

GigaMedia

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GigaMedia are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, GigaMedia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Homes and GigaMedia

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

The idea behind American Homes 4 and GigaMedia 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.