Correlation Between Invitation Homes and Bath Body

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

By analyzing existing cross correlation between Invitation Homes and Bath Body Works, you can compare the effects of market volatilities on Invitation Homes and Bath Body 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 Invitation Homes with a short position of Bath Body. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invitation Homes and Bath Body.

Diversification Opportunities for Invitation Homes and Bath Body

0.17

Correlation Coefficient

Invitation Homes  Bath Body

Average diversification

The 3 months correlation between Invitation and Bath is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Invitation Homes and Bath Body Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bath Body Works and Invitation 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 Invitation Homes are associated (or correlated) with Bath Body. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bath Body Works has no effect on the direction of Invitation Homes i.e., Invitation Homes and Bath Body go up and down completely randomly.

Pair Corralation between Invitation Homes and Bath Body

Assuming the 90 days trading horizon Invitation Homes is expected to generate 0.21 times more return on investment than Bath Body. However, Invitation Homes is 4.73 times less risky than Bath Body. It trades about 0.11 of its potential returns per unit of risk. Bath Body Works is currently generating about 0.01 per unit of risk. If you would invest  3,227  in Invitation Homes on October 24, 2024 and sell it today you would earn a total of  662.00  from holding Invitation Homes or generate 20.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	76.62%
Values	Daily Returns

Invitation Homes  vs.  Bath Body Works

Invitation Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invitation Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Invitation Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bath Body Works

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bath Body Works are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Bath Body sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invitation Homes and Bath Body

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

The idea behind Invitation Homes and Bath Body Works 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.