Correlation Between Anglo Asian and American Homes

Can any of the company-specific risk be diversified away by investing in both Anglo Asian and American Homes 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 Anglo Asian and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Anglo Asian Mining and American Homes 4, you can compare the effects of market volatilities on Anglo Asian and American Homes 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 Anglo Asian with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anglo Asian and American Homes.

Diversification Opportunities for Anglo Asian and American Homes

-0.34

Correlation Coefficient

Anglo Asian  American Homes

Very good diversification

The 3 months correlation between Anglo and American is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Anglo Asian Mining and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 and Anglo Asian 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 Anglo Asian Mining are associated (or correlated) with American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of Anglo Asian i.e., Anglo Asian and American Homes go up and down completely randomly.

Pair Corralation between Anglo Asian and American Homes

Assuming the 90 days trading horizon Anglo Asian Mining is expected to generate 2.12 times more return on investment than American Homes. However, Anglo Asian is 2.12 times more volatile than American Homes 4. It trades about 0.08 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.0 per unit of risk. If you would invest  10,500  in Anglo Asian Mining on December 24, 2024 and sell it today you would earn a total of  1,350  from holding Anglo Asian Mining or generate 12.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.55%
Values	Daily Returns

Anglo Asian Mining  vs.  American Homes 4

Anglo Asian Mining

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo Asian Mining are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Anglo Asian exhibited solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of comparatively stable basic indicators, American Homes is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Anglo Asian and American Homes

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

The idea behind Anglo Asian Mining and American Homes 4 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.

Check out your portfolio center.

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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.