Correlation Between Martin Marietta and American Homes

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

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

Diversification Opportunities for Martin Marietta and American Homes

0.13

Correlation Coefficient

Martin Marietta  American Homes

Average diversification

The 3 months correlation between Martin and American is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Martin Marietta Materials 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 Martin Marietta 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 Martin Marietta Materials 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 Martin Marietta i.e., Martin Marietta and American Homes go up and down completely randomly.

Pair Corralation between Martin Marietta and American Homes

Assuming the 90 days horizon Martin Marietta Materials is expected to generate 0.94 times more return on investment than American Homes. However, Martin Marietta Materials is 1.06 times less risky than American Homes. It trades about 0.07 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  31,382  in Martin Marietta Materials on October 21, 2024 and sell it today you would earn a total of  21,338  from holding Martin Marietta Materials or generate 67.99% return on investment over 90 days.

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

Martin Marietta Materials  vs.  American Homes 4

Martin Marietta Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Martin Marietta Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Martin Marietta is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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

Pair Trading with Martin Marietta and American Homes

The main advantage of trading using opposite Martin Marietta and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Martin Marietta 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 Martin Marietta Materials 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 Global Correlations module to find global opportunities by holding instruments from different markets.