Correlation Between American Homes and UDR

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

Diversification Opportunities for American Homes and UDR

0.45

Correlation Coefficient

American Homes  UDR

Very weak diversification

The 3 months correlation between American and UDR is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and UDR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UDR Inc 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 UDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UDR Inc has no effect on the direction of American Homes i.e., American Homes and UDR go up and down completely randomly.

Pair Corralation between American Homes and UDR

Considering the 90-day investment horizon American Homes is expected to generate 4.38 times less return on investment than UDR. In addition to that, American Homes is 1.13 times more volatile than UDR Inc. It trades about 0.01 of its total potential returns per unit of risk. UDR Inc is currently generating about 0.05 per unit of volatility. If you would invest  4,295  in UDR Inc on December 27, 2024 and sell it today you would earn a total of  140.00  from holding UDR Inc or generate 3.26% 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.  UDR Inc

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.

UDR Inc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in UDR Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, UDR is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with American Homes and UDR

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

The idea behind American Homes 4 and UDR Inc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.