Correlation Between Sun Communities and American Homes

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

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

Diversification Opportunities for Sun Communities and American Homes

-0.05

Correlation Coefficient

Sun Communities  American Homes

Good diversification

The 3 months correlation between Sun and American is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Sun Communities 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 Sun Communities 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 Sun Communities 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 Sun Communities i.e., Sun Communities and American Homes go up and down completely randomly.

Pair Corralation between Sun Communities and American Homes

Assuming the 90 days horizon Sun Communities is expected to generate 1.64 times less return on investment than American Homes. But when comparing it to its historical volatility, Sun Communities is 1.03 times less risky than American Homes. It trades about 0.02 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,415  in American Homes 4 on October 13, 2024 and sell it today you would earn a total of  65.00  from holding American Homes 4 or generate 1.9% return on investment over 90 days.

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

Sun Communities  vs.  American Homes 4

Sun Communities

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Communities are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sun Communities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

American Homes 4

Risk-Adjusted Performance

2 of 100

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

Pair Trading with Sun Communities and American Homes

The main advantage of trading using opposite Sun Communities and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sun Communities 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 Sun Communities 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.