Correlation Between United Homes and Analog Devices

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

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

Diversification Opportunities for United Homes and Analog Devices

0.28

Correlation Coefficient

United Homes  Analog Devices

Modest diversification

The 3 months correlation between United and Analog is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding United Homes Group and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and United Homes 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 United Homes Group are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of United Homes i.e., United Homes and Analog Devices go up and down completely randomly.

Pair Corralation between United Homes and Analog Devices

Considering the 90-day investment horizon United Homes Group is expected to generate 2.36 times more return on investment than Analog Devices. However, United Homes is 2.36 times more volatile than Analog Devices. It trades about 0.11 of its potential returns per unit of risk. Analog Devices is currently generating about 0.08 per unit of risk. If you would invest  423.00  in United Homes Group on October 22, 2024 and sell it today you would earn a total of  27.00  from holding United Homes Group or generate 6.38% return on investment over 90 days.

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

United Homes Group  vs.  Analog Devices

United Homes Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with United Homes and Analog Devices

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

The idea behind United Homes Group and Analog Devices 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.