Correlation Between American Homes and Dow Jones
Can any of the company-specific risk be diversified away by investing in both American Homes and Dow Jones 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 Dow Jones 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 Dow Jones Industrial, you can compare the effects of market volatilities on American Homes and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Dow Jones.
Diversification Opportunities for American Homes and Dow Jones
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Dow is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of American Homes i.e., American Homes and Dow Jones go up and down completely randomly.
Pair Corralation between American Homes and Dow Jones
Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the Dow Jones. In addition to that, American Homes is 1.37 times more volatile than Dow Jones Industrial. It trades about -0.08 of its total potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.24 per unit of volatility. If you would invest 4,211,440 in Dow Jones Industrial on August 26, 2024 and sell it today you would earn a total of 218,211 from holding Dow Jones Industrial or generate 5.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Homes 4 vs. Dow Jones Industrial
Performance |
| Timeline |
American Homes and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
American Homes 4
Pair trading matchups for American Homes
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with American Homes and Dow Jones
The main advantage of trading using opposite American Homes and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| American Homes vs. Flutter Entertainment PLC | American Homes vs. Intermediate Capital Group | American Homes vs. MediaZest plc | American Homes vs. Greenroc Mining PLC |
| Dow Jones vs. MI Homes | Dow Jones vs. Franklin Street Properties | Dow Jones vs. Summit Hotel Properties | Dow Jones vs. Portillos |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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