Correlation Between American Homes and Pentair PLC
Can any of the company-specific risk be diversified away by investing in both American Homes and Pentair PLC 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 American Homes and Pentair PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Homes 4 and Pentair PLC, you can compare the effects of market volatilities on American Homes and Pentair PLC 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 American Homes with a short position of Pentair PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Pentair PLC.
Diversification Opportunities for American Homes and Pentair PLC
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between American and Pentair is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC and American 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 American Homes 4 are associated (or correlated) with Pentair PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pentair PLC has no effect on the direction of American Homes i.e., American Homes and Pentair PLC go up and down completely randomly.
Pair Corralation between American Homes and Pentair PLC
Assuming the 90 days trading horizon American Homes 4 is expected to generate 1.03 times more return on investment than Pentair PLC. However, American Homes is 1.03 times more volatile than Pentair PLC. It trades about -0.17 of its potential returns per unit of risk. Pentair PLC is currently generating about -0.51 per unit of risk. If you would invest 3,745 in American Homes 4 on October 12, 2024 and sell it today you would lose (152.00) from holding American Homes 4 or give up 4.06% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Homes 4 vs. Pentair PLC
Performance |
| Timeline |
| American Homes 4 |
| Pentair PLC |
American Homes and Pentair PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Pentair PLC
The main advantage of trading using opposite American Homes and Pentair PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Pentair PLC 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 Pentair PLC will offset losses from the drop in Pentair PLC's long position.| American Homes vs. Southwest Airlines Co | American Homes vs. Flutter Entertainment PLC | American Homes vs. United Airlines Holdings | American Homes vs. Liberty Media Corp |
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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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