Correlation Between Forestar and American Realty

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

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

Diversification Opportunities for Forestar and American Realty

0.42

Correlation Coefficient

Forestar  American Realty

Very weak diversification

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

Pair Corralation between Forestar and American Realty

Considering the 90-day investment horizon Forestar Group is expected to generate 0.55 times more return on investment than American Realty. However, Forestar Group is 1.81 times less risky than American Realty. It trades about -0.12 of its potential returns per unit of risk. American Realty Investors is currently generating about -0.08 per unit of risk. 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

Forestar Group  vs.  American Realty 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.

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.

Pair Trading with Forestar and American Realty

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

The idea behind Forestar Group and American Realty Investors 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.