Correlation Between American Homes and Nexstar Media

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

Diversification Opportunities for American Homes and Nexstar Media

0.74

Correlation Coefficient

American Homes  Nexstar Media

Poor diversification

The 3 months correlation between American and Nexstar is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Nexstar Media Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nexstar Media Group 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 Nexstar Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nexstar Media Group has no effect on the direction of American Homes i.e., American Homes and Nexstar Media go up and down completely randomly.

Pair Corralation between American Homes and Nexstar Media

Assuming the 90 days trading horizon American Homes is expected to generate 2.99 times less return on investment than Nexstar Media. But when comparing it to its historical volatility, American Homes 4 is 1.46 times less risky than Nexstar Media. It trades about 0.11 of its potential returns per unit of risk. Nexstar Media Group is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  14,490  in Nexstar Media Group on December 6, 2024 and sell it today you would earn a total of  1,945  from holding Nexstar Media Group or generate 13.42% return on investment over 90 days.

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

American Homes 4  vs.  Nexstar Media Group

American Homes 4

Risk-Adjusted Performance

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.

Nexstar Media Group

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nexstar Media Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Nexstar Media is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Homes and Nexstar Media

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

The idea behind American Homes 4 and Nexstar Media Group 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.