Correlation Between American Homes and Equity Residential
Can any of the company-specific risk be diversified away by investing in both American Homes and Equity Residential 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 Equity Residential 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 Equity Residential, you can compare the effects of market volatilities on American Homes and Equity Residential 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 Equity Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Equity Residential.
Diversification Opportunities for American Homes and Equity Residential
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Equity is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential 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 Equity Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Residential has no effect on the direction of American Homes i.e., American Homes and Equity Residential go up and down completely randomly.
Pair Corralation between American Homes and Equity Residential
Considering the 90-day investment horizon American Homes is expected to generate 1.7 times less return on investment than Equity Residential. But when comparing it to its historical volatility, American Homes 4 is 1.03 times less risky than Equity Residential. It trades about 0.03 of its potential returns per unit of risk. Equity Residential is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 6,135 in Equity Residential on August 31, 2024 and sell it today you would earn a total of 1,531 from holding Equity Residential or generate 24.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Homes 4 vs. Equity Residential
Performance |
| Timeline |
| American Homes 4 |
| Equity Residential |
American Homes and Equity Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Equity Residential
The main advantage of trading using opposite American Homes and Equity Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Equity Residential 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 Equity Residential will offset losses from the drop in Equity Residential's long position.| American Homes vs. Sun Communities | American Homes vs. Clipper Realty | American Homes vs. UDR Inc | American Homes vs. UMH Properties |
| Equity Residential vs. Apartment Investment and | Equity Residential vs. Clipper Realty | Equity Residential vs. BRT Realty Trust | Equity Residential vs. UDR Inc |
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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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