Correlation Between American Homes and Major Drilling
Can any of the company-specific risk be diversified away by investing in both American Homes and Major Drilling 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 Major Drilling 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 Major Drilling Group, you can compare the effects of market volatilities on American Homes and Major Drilling 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 Major Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Major Drilling.
Diversification Opportunities for American Homes and Major Drilling
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Major is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Major Drilling Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Major Drilling Group 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 Major Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Major Drilling Group has no effect on the direction of American Homes i.e., American Homes and Major Drilling go up and down completely randomly.
Pair Corralation between American Homes and Major Drilling
Assuming the 90 days trading horizon American Homes 4 is expected to generate 0.86 times more return on investment than Major Drilling. However, American Homes 4 is 1.16 times less risky than Major Drilling. It trades about 0.14 of its potential returns per unit of risk. Major Drilling Group is currently generating about 0.11 per unit of risk. If you would invest 3,200 in American Homes 4 on November 27, 2024 and sell it today you would earn a total of 160.00 from holding American Homes 4 or generate 5.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Homes 4 vs. Major Drilling Group
Performance |
| Timeline |
| American Homes 4 |
| Major Drilling Group |
American Homes and Major Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Major Drilling
The main advantage of trading using opposite American Homes and Major Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Major Drilling 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 Major Drilling will offset losses from the drop in Major Drilling's long position.| American Homes vs. Sumitomo Rubber Industries | American Homes vs. Peijia Medical Limited | American Homes vs. Plastic Omnium | American Homes vs. Applied Materials |
| Major Drilling vs. Genscript Biotech | Major Drilling vs. Columbia Sportswear | Major Drilling vs. Gaztransport et technigaz | Major Drilling vs. Addtech AB |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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