Correlation Between CAIRN HOMES and American Homes

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

By analyzing existing cross correlation between CAIRN HOMES EO and American Homes 4, you can compare the effects of market volatilities on CAIRN HOMES and American Homes 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 CAIRN HOMES with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAIRN HOMES and American Homes.

Diversification Opportunities for CAIRN HOMES and American Homes

0.65

Correlation Coefficient

CAIRN HOMES  American Homes

Poor diversification

The 3 months correlation between CAIRN and American is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding CAIRN HOMES EO and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 and CAIRN 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 CAIRN HOMES EO are associated (or correlated) with American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of CAIRN HOMES i.e., CAIRN HOMES and American Homes go up and down completely randomly.

Pair Corralation between CAIRN HOMES and American Homes

Assuming the 90 days horizon CAIRN HOMES EO is expected to under-perform the American Homes. In addition to that, CAIRN HOMES is 1.2 times more volatile than American Homes 4. It trades about -0.06 of its total potential returns per unit of risk. American Homes 4 is currently generating about -0.04 per unit of volatility. If you would invest  3,490  in American Homes 4 on December 21, 2024 and sell it today you would lose (170.00) from holding American Homes 4 or give up 4.87% of portfolio value over 90 days.

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

CAIRN HOMES EO  vs.  American Homes 4

CAIRN HOMES EO

Risk-Adjusted Performance

Very Weak

Over the last 90 days CAIRN HOMES EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 nearly stable basic indicators, American Homes is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CAIRN HOMES and American Homes

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

The idea behind CAIRN HOMES EO and American Homes 4 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 CEOs Directory module to screen CEOs from public companies around the world.