Correlation Between American Homes and ASPEN TECHINC

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

Diversification Opportunities for American Homes and ASPEN TECHINC

0.05

Correlation Coefficient

American Homes  ASPEN TECHINC

Significant diversification

The 3 months correlation between American and ASPEN is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and ASPEN TECHINC DL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASPEN TECHINC DL 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 ASPEN TECHINC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASPEN TECHINC DL has no effect on the direction of American Homes i.e., American Homes and ASPEN TECHINC go up and down completely randomly.

Pair Corralation between American Homes and ASPEN TECHINC

Assuming the 90 days trading horizon American Homes is expected to generate 2.47 times less return on investment than ASPEN TECHINC. In addition to that, American Homes is 1.14 times more volatile than ASPEN TECHINC DL. It trades about 0.04 of its total potential returns per unit of risk. ASPEN TECHINC DL is currently generating about 0.11 per unit of volatility. If you would invest  21,000  in ASPEN TECHINC DL on August 31, 2024 and sell it today you would earn a total of  2,400  from holding ASPEN TECHINC DL or generate 11.43% return on investment over 90 days.

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

American Homes 4  vs.  ASPEN TECHINC DL

American Homes 4

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 3 (%) 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.

ASPEN TECHINC DL

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ASPEN TECHINC DL are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ASPEN TECHINC may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with American Homes and ASPEN TECHINC

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

The idea behind American Homes 4 and ASPEN TECHINC DL 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.