Correlation Between American Homes and Centerspace

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

Diversification Opportunities for American Homes and Centerspace

0.14

Correlation Coefficient

American Homes  Centerspace

Average diversification

The 3 months correlation between American and Centerspace is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Centerspace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centerspace 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 Centerspace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centerspace has no effect on the direction of American Homes i.e., American Homes and Centerspace go up and down completely randomly.

Pair Corralation between American Homes and Centerspace

Assuming the 90 days trading horizon American Homes 4 is expected to generate 0.68 times more return on investment than Centerspace. However, American Homes 4 is 1.48 times less risky than Centerspace. It trades about -0.01 of its potential returns per unit of risk. Centerspace is currently generating about -0.09 per unit of risk. If you would invest  2,432  in American Homes 4 on December 1, 2024 and sell it today you would lose (15.00) from holding American Homes 4 or give up 0.62% of portfolio value over 90 days.

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

American Homes 4  vs.  Centerspace

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 fairly strong technical indicators, American Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Centerspace

Risk-Adjusted Performance

Very Weak

Over the last 90 days Centerspace has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with American Homes and Centerspace

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

The idea behind American Homes 4 and Centerspace 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.