Correlation Between North American and Aedas Homes

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

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

Diversification Opportunities for North American and Aedas Homes

-0.2

Correlation Coefficient

North American  Aedas Homes

Good diversification

The 3 months correlation between North and Aedas is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Aedas Homes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aedas Homes SA and North American 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 North American Construction are associated (or correlated) with Aedas Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aedas Homes SA has no effect on the direction of North American i.e., North American and Aedas Homes go up and down completely randomly.

Pair Corralation between North American and Aedas Homes

Assuming the 90 days horizon North American is expected to generate 1.32 times less return on investment than Aedas Homes. In addition to that, North American is 1.57 times more volatile than Aedas Homes SA. It trades about 0.05 of its total potential returns per unit of risk. Aedas Homes SA is currently generating about 0.11 per unit of volatility. If you would invest  974.00  in Aedas Homes SA on September 16, 2024 and sell it today you would earn a total of  1,506  from holding Aedas Homes SA or generate 154.62% return on investment over 90 days.

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

North American Construction  vs.  Aedas Homes SA

North American Const

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, North American reported solid returns over the last few months and may actually be approaching a breakup point.

Aedas Homes SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Aedas Homes SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Aedas 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 North American and Aedas Homes

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

The idea behind North American Construction and Aedas Homes SA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.