Correlation Between American Homes and Veris Residential

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

Diversification Opportunities for American Homes and Veris Residential

0.77

Correlation Coefficient

American Homes  Veris Residential

Poor diversification

The 3 months correlation between American and Veris is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Veris Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veris Residential 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 Veris Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veris Residential has no effect on the direction of American Homes i.e., American Homes and Veris Residential go up and down completely randomly.

Pair Corralation between American Homes and Veris Residential

Considering the 90-day investment horizon American Homes is expected to generate 1.14 times less return on investment than Veris Residential. But when comparing it to its historical volatility, American Homes 4 is 1.01 times less risky than Veris Residential. It trades about 0.03 of its potential returns per unit of risk. Veris Residential is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,634  in Veris Residential on December 28, 2024 and sell it today you would earn a total of  37.00  from holding Veris Residential or generate 2.26% return on investment over 90 days.

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

American Homes 4  vs.  Veris Residential

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.

Veris Residential

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Veris Residential are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Veris Residential is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Homes and Veris Residential

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

The idea behind American Homes 4 and Veris Residential 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.