Correlation Between Cardiff Property and American Homes

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

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

Diversification Opportunities for Cardiff Property and American Homes

-0.04

Correlation Coefficient

Cardiff Property  American Homes

Good diversification

The 3 months correlation between Cardiff and American is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Cardiff Property PLC 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 Cardiff Property 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 Cardiff Property PLC 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 Cardiff Property i.e., Cardiff Property and American Homes go up and down completely randomly.

Pair Corralation between Cardiff Property and American Homes

Assuming the 90 days trading horizon Cardiff Property is expected to generate 7.63 times less return on investment than American Homes. But when comparing it to its historical volatility, Cardiff Property PLC is 1.79 times less risky than American Homes. It trades about 0.01 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,354  in American Homes 4 on October 8, 2024 and sell it today you would earn a total of  353.00  from holding American Homes 4 or generate 10.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.21%
Values	Daily Returns

Cardiff Property PLC  vs.  American Homes 4

Cardiff Property PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cardiff Property PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cardiff Property may actually be approaching a critical reversion point that can send shares even higher in February 2025.

American Homes 4

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Homes 4 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, American Homes is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cardiff Property and American Homes

The main advantage of trading using opposite Cardiff Property and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cardiff Property 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 Cardiff Property PLC 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.