Correlation Between American Homes and Nokia

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

Diversification Opportunities for American Homes and Nokia

-0.25

Correlation Coefficient

American Homes  Nokia

Very good diversification

The 3 months correlation between American and Nokia is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Nokia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokia 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 Nokia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokia has no effect on the direction of American Homes i.e., American Homes and Nokia go up and down completely randomly.

Pair Corralation between American Homes and Nokia

Assuming the 90 days trading horizon American Homes 4 is expected to generate 1.3 times more return on investment than Nokia. However, American Homes is 1.3 times more volatile than Nokia. It trades about 0.12 of its potential returns per unit of risk. Nokia is currently generating about 0.04 per unit of risk. If you would invest  3,257  in American Homes 4 on October 7, 2024 and sell it today you would earn a total of  243.00  from holding American Homes 4 or generate 7.46% return on investment over 90 days.

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

American Homes 4  vs.  Nokia

American Homes 4

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 2 (%) 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.

Nokia

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nokia are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Nokia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Homes and Nokia

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

The idea behind American Homes 4 and Nokia 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.