Correlation Between American Homes and Eco Animal
Can any of the company-specific risk be diversified away by investing in both American Homes and Eco Animal 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 Eco Animal 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 Eco Animal Health, you can compare the effects of market volatilities on American Homes and Eco Animal 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 Eco Animal. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Eco Animal.
Diversification Opportunities for American Homes and Eco Animal
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Eco is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Eco Animal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eco Animal Health 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 Eco Animal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eco Animal Health has no effect on the direction of American Homes i.e., American Homes and Eco Animal go up and down completely randomly.
Pair Corralation between American Homes and Eco Animal
Assuming the 90 days trading horizon American Homes 4 is expected to generate 0.44 times more return on investment than Eco Animal. However, American Homes 4 is 2.27 times less risky than Eco Animal. It trades about 0.3 of its potential returns per unit of risk. Eco Animal Health is currently generating about -0.04 per unit of risk. If you would invest 3,605 in American Homes 4 on September 1, 2024 and sell it today you would earn a total of 254.00 from holding American Homes 4 or generate 7.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
American Homes 4 vs. Eco Animal Health
Performance |
| Timeline |
| American Homes 4 |
| Eco Animal Health |
American Homes and Eco Animal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Eco Animal
The main advantage of trading using opposite American Homes and Eco Animal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Eco Animal 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 Eco Animal will offset losses from the drop in Eco Animal's long position.| American Homes vs. Capital Drilling | American Homes vs. Herald Investment Trust | American Homes vs. GlobalData PLC | American Homes vs. Zoom Video Communications |
| Eco Animal vs. Viridian Therapeutics | Eco Animal vs. CVR Energy | Eco Animal vs. Nationwide Building Society | Eco Animal vs. Dollar Tree |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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