Correlation Between American Homes and Seaboard

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

Diversification Opportunities for American Homes and Seaboard

-0.09

Correlation Coefficient

American Homes  Seaboard

Good diversification

The 3 months correlation between American and Seaboard is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Seaboard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seaboard 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 Seaboard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seaboard has no effect on the direction of American Homes i.e., American Homes and Seaboard go up and down completely randomly.

Pair Corralation between American Homes and Seaboard

Assuming the 90 days trading horizon American Homes is expected to generate 38.8 times less return on investment than Seaboard. But when comparing it to its historical volatility, American Homes 4 is 1.32 times less risky than Seaboard. It trades about 0.0 of its potential returns per unit of risk. Seaboard is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  229,819  in Seaboard on December 30, 2024 and sell it today you would earn a total of  16,181  from holding Seaboard or generate 7.04% 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.  Seaboard

American Homes 4

Risk-Adjusted Performance

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

Seaboard

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Seaboard are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Seaboard may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with American Homes and Seaboard

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

The idea behind American Homes 4 and Seaboard 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.