Correlation Between American Homes and Aeorema Communications
Can any of the company-specific risk be diversified away by investing in both American Homes and Aeorema Communications 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 Aeorema Communications 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 Aeorema Communications Plc, you can compare the effects of market volatilities on American Homes and Aeorema Communications 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 Aeorema Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Aeorema Communications.
Diversification Opportunities for American Homes and Aeorema Communications
0.3 | Correlation Coefficient |
Weak diversification
The 3 months correlation between American and Aeorema is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Aeorema Communications Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeorema Communications 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 Aeorema Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeorema Communications has no effect on the direction of American Homes i.e., American Homes and Aeorema Communications go up and down completely randomly.
Pair Corralation between American Homes and Aeorema Communications
Assuming the 90 days trading horizon American Homes 4 is expected to generate 0.66 times more return on investment than Aeorema Communications. However, American Homes 4 is 1.5 times less risky than Aeorema Communications. It trades about -0.3 of its potential returns per unit of risk. Aeorema Communications Plc is currently generating about -0.42 per unit of risk. If you would invest 3,696 in American Homes 4 on October 26, 2024 and sell it today you would lose (260.00) from holding American Homes 4 or give up 7.03% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 89.47% |
| Values | Daily Returns |
American Homes 4 vs. Aeorema Communications Plc
Performance |
| Timeline |
| American Homes 4 |
| Aeorema Communications |
American Homes and Aeorema Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Aeorema Communications
The main advantage of trading using opposite American Homes and Aeorema Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Aeorema Communications 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 Aeorema Communications will offset losses from the drop in Aeorema Communications' long position.| American Homes vs. Teradata Corp | American Homes vs. Gruppo MutuiOnline SpA | American Homes vs. Optima Health plc | American Homes vs. Vulcan Materials Co |
| Aeorema Communications vs. American Homes 4 | Aeorema Communications vs. Beazer Homes USA | Aeorema Communications vs. Air Products Chemicals | Aeorema Communications vs. Bloomsbury Publishing Plc |
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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