Correlation Between Companhia and American Homes

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

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

Diversification Opportunities for Companhia and American Homes

0.29

Correlation Coefficient

Companhia  American Homes

Modest diversification

The 3 months correlation between Companhia and American is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento 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 Companhia 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 Companhia de Saneamento 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 Companhia i.e., Companhia and American Homes go up and down completely randomly.

Pair Corralation between Companhia and American Homes

Assuming the 90 days trading horizon Companhia de Saneamento is expected to generate 1.19 times more return on investment than American Homes. However, Companhia is 1.19 times more volatile than American Homes 4. It trades about 0.05 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  906.00  in Companhia de Saneamento on October 3, 2024 and sell it today you would earn a total of  474.00  from holding Companhia de Saneamento or generate 52.32% return on investment over 90 days.

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

Companhia de Saneamento  vs.  American Homes 4

Companhia de Saneamento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia de Saneamento has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's forward-looking indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

American Homes 4

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Companhia and American Homes

The main advantage of trading using opposite Companhia and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Companhia 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 Companhia de Saneamento 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.