Correlation Between American Homes and Carsales
Can any of the company-specific risk be diversified away by investing in both American Homes and Carsales 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 Carsales 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 CarsalesCom, you can compare the effects of market volatilities on American Homes and Carsales 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 Carsales. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Carsales.
Diversification Opportunities for American Homes and Carsales
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between American and Carsales is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom 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 Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom has no effect on the direction of American Homes i.e., American Homes and Carsales go up and down completely randomly.
Pair Corralation between American Homes and Carsales
Assuming the 90 days trading horizon American Homes is expected to generate 4.71 times less return on investment than Carsales. In addition to that, American Homes is 1.67 times more volatile than CarsalesCom. It trades about 0.04 of its total potential returns per unit of risk. CarsalesCom is currently generating about 0.35 per unit of volatility. If you would invest 2,240 in CarsalesCom on August 29, 2024 and sell it today you would earn a total of 240.00 from holding CarsalesCom or generate 10.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Homes 4 vs. CarsalesCom
Performance |
| Timeline |
| American Homes 4 |
| CarsalesCom |
American Homes and Carsales Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Carsales
The main advantage of trading using opposite American Homes and Carsales positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Carsales 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 Carsales will offset losses from the drop in Carsales' long position.| American Homes vs. Superior Plus Corp | American Homes vs. NMI Holdings | American Homes vs. Origin Agritech | American Homes vs. SIVERS SEMICONDUCTORS AB |
| Carsales vs. CapitaLand Investment Limited | Carsales vs. Genco Shipping Trading | Carsales vs. MGIC INVESTMENT | Carsales vs. WisdomTree Investments |
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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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