Correlation Between American Homes and Mid America
Can any of the company-specific risk be diversified away by investing in both American Homes and Mid America 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 Mid America 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 Mid America Apartment Communities, you can compare the effects of market volatilities on American Homes and Mid America 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 Mid America. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Mid America.
Diversification Opportunities for American Homes and Mid America
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Mid is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Mid America Apartment Communit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid America Apartment 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 Mid America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid America Apartment has no effect on the direction of American Homes i.e., American Homes and Mid America go up and down completely randomly.
Pair Corralation between American Homes and Mid America
Assuming the 90 days trading horizon American Homes is expected to generate 1.67 times less return on investment than Mid America. But when comparing it to its historical volatility, American Homes 4 is 2.13 times less risky than Mid America. It trades about 0.04 of its potential returns per unit of risk. Mid America Apartment Communities is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 4,763 in Mid America Apartment Communities on August 27, 2024 and sell it today you would earn a total of 1,085 from holding Mid America Apartment Communities or generate 22.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.36% |
| Values | Daily Returns |
American Homes 4 vs. Mid America Apartment Communit
Performance |
| Timeline |
| American Homes 4 |
| Mid America Apartment |
American Homes and Mid America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Mid America
The main advantage of trading using opposite American Homes and Mid America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Mid America 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 Mid America will offset losses from the drop in Mid America's long position.| American Homes vs. American Homes 4 | American Homes vs. BRT Realty Trust | American Homes vs. Nexpoint Residential Trust | American Homes vs. Centerspace |
| Mid America vs. American Homes 4 | Mid America vs. UMH Properties | Mid America vs. Clipper Realty | Mid America vs. American Homes 4 |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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