Correlation Between Vornado Realty and American Homes

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

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

Diversification Opportunities for Vornado Realty and American Homes

0.34

Correlation Coefficient

Vornado Realty  American Homes

Weak diversification

The 3 months correlation between Vornado and American is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Vornado Realty Trust 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 Vornado Realty 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 Vornado Realty Trust 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 Vornado Realty i.e., Vornado Realty and American Homes go up and down completely randomly.

Pair Corralation between Vornado Realty and American Homes

Assuming the 90 days trading horizon Vornado Realty Trust is expected to generate 1.4 times more return on investment than American Homes. However, Vornado Realty is 1.4 times more volatile than American Homes 4. It trades about 0.03 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.01 per unit of risk. If you would invest  1,784  in Vornado Realty Trust on December 1, 2024 and sell it today you would earn a total of  27.00  from holding Vornado Realty Trust or generate 1.51% return on investment over 90 days.

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

Vornado Realty Trust  vs.  American Homes 4

Vornado Realty Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vornado Realty Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vornado Realty is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

American Homes 4

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Homes 4 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical indicators, American Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Vornado Realty and American Homes

The main advantage of trading using opposite Vornado Realty and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vornado Realty 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 Vornado Realty Trust 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..