Correlation Between American Homes and Stewart Information
Can any of the company-specific risk be diversified away by investing in both American Homes and Stewart Information 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 Stewart Information 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 Stewart Information Services, you can compare the effects of market volatilities on American Homes and Stewart Information 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 Stewart Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Stewart Information.
Diversification Opportunities for American Homes and Stewart Information
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between American and Stewart is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Stewart Information Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stewart Information 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 Stewart Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stewart Information has no effect on the direction of American Homes i.e., American Homes and Stewart Information go up and down completely randomly.
Pair Corralation between American Homes and Stewart Information
Assuming the 90 days trading horizon American Homes is expected to generate 2.58 times less return on investment than Stewart Information. In addition to that, American Homes is 1.07 times more volatile than Stewart Information Services. It trades about 0.04 of its total potential returns per unit of risk. Stewart Information Services is currently generating about 0.1 per unit of volatility. If you would invest 4,714 in Stewart Information Services on September 4, 2024 and sell it today you would earn a total of 2,136 from holding Stewart Information Services or generate 45.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Homes 4 vs. Stewart Information Services
Performance |
| Timeline |
| American Homes 4 |
| Stewart Information |
American Homes and Stewart Information Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Stewart Information
The main advantage of trading using opposite American Homes and Stewart Information positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Stewart Information 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 Stewart Information will offset losses from the drop in Stewart Information's long position.The idea behind American Homes 4 and Stewart Information Services pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Stewart Information vs. DICKER DATA LTD | Stewart Information vs. Fukuyama Transporting Co | Stewart Information vs. Gold Road Resources | Stewart Information vs. Automatic Data Processing |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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