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

0.42

Correlation Coefficient

American Homes  BRT Realty

Very weak diversification

The 3 months correlation between American and BRT is 0.42. 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

Considering the 90-day investment horizon American Homes is expected to generate 2.54 times less return on investment than BRT Realty. But when comparing it to its historical volatility, American Homes 4 is 1.11 times less risky than BRT Realty. It trades about 0.01 of its potential returns per unit of risk. BRT Realty Trust is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,775  in BRT Realty Trust on December 27, 2024 and sell it today you would earn a total of  25.00  from holding BRT Realty Trust or generate 1.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
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 fairly strong primary indicators, American Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

BRT Realty Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BRT Realty Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.