Correlation Between Ross Stores and Invitation Homes

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

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

Diversification Opportunities for Ross Stores and Invitation Homes

0.27

Correlation Coefficient

Ross Stores  Invitation Homes

Modest diversification

The 3 months correlation between Ross and Invitation is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Ross Stores and Invitation Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invitation Homes and Ross Stores 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 Ross Stores are associated (or correlated) with Invitation Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invitation Homes has no effect on the direction of Ross Stores i.e., Ross Stores and Invitation Homes go up and down completely randomly.

Pair Corralation between Ross Stores and Invitation Homes

Assuming the 90 days trading horizon Ross Stores is expected to generate 0.79 times more return on investment than Invitation Homes. However, Ross Stores is 1.27 times less risky than Invitation Homes. It trades about -0.44 of its potential returns per unit of risk. Invitation Homes is currently generating about -0.45 per unit of risk. If you would invest  45,632  in Ross Stores on October 25, 2024 and sell it today you would lose (1,382) from holding Ross Stores or give up 3.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	27.78%
Values	Daily Returns

Ross Stores  vs.  Invitation Homes

Ross Stores

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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.

Pair Trading with Ross Stores and Invitation Homes

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

The idea behind Ross Stores and Invitation Homes 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.