Correlation Between American Realty and Forestar

Can any of the company-specific risk be diversified away by investing in both American Realty and Forestar 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 Realty and Forestar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Realty Investors and Forestar Group, you can compare the effects of market volatilities on American Realty and Forestar 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 Realty with a short position of Forestar. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Realty and Forestar.

Diversification Opportunities for American Realty and Forestar

0.42

Correlation Coefficient

American Realty  Forestar

Very weak diversification

The 3 months correlation between American and Forestar is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding American Realty Investors and Forestar Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Forestar Group and American Realty 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 Realty Investors are associated (or correlated) with Forestar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Forestar Group has no effect on the direction of American Realty i.e., American Realty and Forestar go up and down completely randomly.

Pair Corralation between American Realty and Forestar

Considering the 90-day investment horizon American Realty Investors is expected to under-perform the Forestar. In addition to that, American Realty is 1.81 times more volatile than Forestar Group. It trades about -0.08 of its total potential returns per unit of risk. Forestar Group is currently generating about -0.12 per unit of volatility. If you would invest  2,560  in Forestar Group on December 30, 2024 and sell it today you would lose (453.00) from holding Forestar Group or give up 17.7% of portfolio value over 90 days.

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

American Realty Investors  vs.  Forestar Group

American Realty Investors

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Realty Investors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Forestar Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Forestar Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with American Realty and Forestar

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

The idea behind American Realty Investors and Forestar Group 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.