Correlation Between American Homes and Independence Realty

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

Diversification Opportunities for American Homes and Independence Realty

0.53

Correlation Coefficient

American Homes  Independence Realty

Very weak diversification

The 3 months correlation between American and Independence is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Independence Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independence 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 Independence Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independence Realty Trust has no effect on the direction of American Homes i.e., American Homes and Independence Realty go up and down completely randomly.

Pair Corralation between American Homes and Independence Realty

Considering the 90-day investment horizon American Homes is expected to generate 2.5 times less return on investment than Independence Realty. In addition to that, American Homes is 1.09 times more volatile than Independence Realty Trust. It trades about 0.03 of its total potential returns per unit of risk. Independence Realty Trust is currently generating about 0.09 per unit of volatility. If you would invest  1,949  in Independence Realty Trust on December 30, 2024 and sell it today you would earn a total of  137.00  from holding Independence Realty Trust or generate 7.03% 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.  Independence Realty Trust

American Homes 4

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Independence Realty Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Independence Realty Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Independence Realty may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with American Homes and Independence Realty

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

The idea behind American Homes 4 and Independence 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.