Correlation Between Home Capital and Aedas Homes

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

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

Diversification Opportunities for Home Capital and Aedas Homes

-0.69

Correlation Coefficient

Home Capital  Aedas Homes

Excellent diversification

The 3 months correlation between Home and Aedas is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Home Capital Rentals and Aedas Homes SL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aedas Homes SL and Home Capital 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 Home Capital Rentals are associated (or correlated) with Aedas Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aedas Homes SL has no effect on the direction of Home Capital i.e., Home Capital and Aedas Homes go up and down completely randomly.

Pair Corralation between Home Capital and Aedas Homes

If you would invest  660.00  in Home Capital Rentals on December 3, 2024 and sell it today you would earn a total of  0.00  from holding Home Capital Rentals or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Home Capital Rentals  vs.  Aedas Homes SL

Home Capital Rentals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Home Capital Rentals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Aedas Homes SL

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aedas Homes SL are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, Aedas Homes displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Home Capital and Aedas Homes

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

The idea behind Home Capital Rentals and Aedas Homes SL 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.