Correlation Between American Homes and London Security
Can any of the company-specific risk be diversified away by investing in both American Homes and London Security 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 London Security 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 London Security Plc, you can compare the effects of market volatilities on American Homes and London Security 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 London Security. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and London Security.
Diversification Opportunities for American Homes and London Security
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and London is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and London Security Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Security 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 London Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Security Plc has no effect on the direction of American Homes i.e., American Homes and London Security go up and down completely randomly.
Pair Corralation between American Homes and London Security
Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the London Security. In addition to that, American Homes is 1.07 times more volatile than London Security Plc. It trades about -0.22 of its total potential returns per unit of risk. London Security Plc is currently generating about 0.22 per unit of volatility. If you would invest 340,000 in London Security Plc on November 7, 2024 and sell it today you would earn a total of 20,000 from holding London Security Plc or generate 5.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
American Homes 4 vs. London Security Plc
Performance |
| Timeline |
| American Homes 4 |
| London Security Plc |
American Homes and London Security Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and London Security
The main advantage of trading using opposite American Homes and London Security positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, London Security 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 London Security will offset losses from the drop in London Security's long position.| American Homes vs. Alaska Air Group | American Homes vs. Charter Communications Cl | American Homes vs. Norwegian Air Shuttle | American Homes vs. Cairo Communication SpA |
| London Security vs. Empire Metals Limited | London Security vs. Qurate Retail Series | London Security vs. British American Tobacco | London Security vs. Vienna Insurance Group |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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