Correlation Between American Homes and BRT Realty

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

Diversification Opportunities for American Homes and BRT Realty

0.2

Correlation Coefficient

American Homes  BRT Realty

Modest diversification

The 3 months correlation between American and BRT is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and BRT Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRT Realty Trust 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 BRT Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRT Realty Trust has no effect on the direction of American Homes i.e., American Homes and BRT Realty go up and down completely randomly.

Pair Corralation between American Homes and BRT Realty

Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the BRT Realty. But the preferred stock apears to be less risky and, when comparing its historical volatility, American Homes 4 is 1.85 times less risky than BRT Realty. The preferred stock trades about -0.05 of its potential returns per unit of risk. The BRT Realty Trust is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,781  in BRT Realty Trust on December 28, 2024 and sell it today you would lose (47.00) from holding BRT Realty Trust or give up 2.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

American Homes 4  vs.  BRT Realty Trust

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 technical indicators, American Homes is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

BRT Realty Trust

Risk-Adjusted Performance

Weak

Over the last 90 days BRT Realty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BRT Realty 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 American Homes and BRT Realty

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

The idea behind American Homes 4 and BRT Realty Trust 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.