Correlation Between Invitation Homes and American Homes

Can any of the company-specific risk be diversified away by investing in both Invitation 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 Invitation 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 Invitation Homes and American Homes 4, you can compare the effects of market volatilities on Invitation 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 Invitation Homes with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invitation Homes and American Homes.

Diversification Opportunities for Invitation Homes and American Homes

0.68

Correlation Coefficient

Invitation Homes  American Homes

Poor diversification

The 3 months correlation between Invitation and American is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Invitation Homes 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 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 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 Invitation Homes i.e., Invitation Homes and American Homes go up and down completely randomly.

Pair Corralation between Invitation Homes and American Homes

Given the investment horizon of 90 days Invitation Homes is expected to generate 0.92 times more return on investment than American Homes. However, Invitation Homes is 1.08 times less risky than American Homes. It trades about 0.12 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.03 per unit of risk. If you would invest  3,156  in Invitation Homes on December 30, 2024 and sell it today you would earn a total of  291.00  from holding Invitation Homes or generate 9.22% return on investment over 90 days.

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

Invitation Homes  vs.  American Homes 4

Invitation Homes

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invitation Homes are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Invitation Homes may actually be approaching a critical reversion point that can send shares even higher in April 2025.

American Homes 4

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong primary indicators, American Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Invitation Homes and American Homes

The main advantage of trading using opposite Invitation Homes and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invitation 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 Invitation Homes 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..