Correlation Between American Homes and Premier Foods
Can any of the company-specific risk be diversified away by investing in both American Homes and Premier Foods 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 Premier Foods 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 Premier Foods PLC, you can compare the effects of market volatilities on American Homes and Premier Foods 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 Premier Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Premier Foods.
Diversification Opportunities for American Homes and Premier Foods
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and Premier is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Premier Foods PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods 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 Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods PLC has no effect on the direction of American Homes i.e., American Homes and Premier Foods go up and down completely randomly.
Pair Corralation between American Homes and Premier Foods
Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the Premier Foods. But the stock apears to be less risky and, when comparing its historical volatility, American Homes 4 is 1.01 times less risky than Premier Foods. The stock trades about -0.11 of its potential returns per unit of risk. The Premier Foods PLC is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 18,360 in Premier Foods PLC on November 8, 2024 and sell it today you would earn a total of 820.00 from holding Premier Foods PLC or generate 4.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 86.96% |
| Values | Daily Returns |
American Homes 4 vs. Premier Foods PLC
Performance |
| Timeline |
| American Homes 4 |
| Premier Foods PLC |
American Homes and Premier Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Premier Foods
The main advantage of trading using opposite American Homes and Premier Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Premier Foods 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 Premier Foods will offset losses from the drop in Premier Foods' long position.| American Homes vs. Dentsply Sirona | American Homes vs. Impax Environmental Markets | American Homes vs. JB Hunt Transport | American Homes vs. Foresight Environmental Infrastructure |
| Premier Foods vs. Chocoladefabriken Lindt Spruengli | Premier Foods vs. Rockwood Realisation PLC | Premier Foods vs. Toyota Motor Corp | Premier Foods vs. Princess Private Equity |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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