Correlation Between Continental and American Homes
Can any of the company-specific risk be diversified away by investing in both Continental and American Homes 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 Continental and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Camden Property Trust and American Homes 4, you can compare the effects of market volatilities on Continental and American Homes 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 Continental with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Continental and American Homes.
Diversification Opportunities for Continental and American Homes
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Continental and American is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Camden Property Trust and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 and Continental 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 Camden Property Trust are associated (or correlated) with American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of Continental i.e., Continental and American Homes go up and down completely randomly.
Pair Corralation between Continental and American Homes
Assuming the 90 days horizon Camden Property Trust is expected to generate 0.62 times more return on investment than American Homes. However, Camden Property Trust is 1.62 times less risky than American Homes. It trades about 0.07 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.03 per unit of risk. If you would invest 9,909 in Camden Property Trust on September 23, 2024 and sell it today you would earn a total of 1,091 from holding Camden Property Trust or generate 11.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Camden Property Trust vs. American Homes 4
Performance |
| Timeline |
| Camden Property Trust |
| American Homes 4 |
Continental and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Continental and American Homes
The main advantage of trading using opposite Continental and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Continental position performs unexpectedly, American Homes 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 American Homes will offset losses from the drop in American Homes' long position.| Continental vs. Equity Residential | Continental vs. AvalonBay Communities | Continental vs. UDR Inc | Continental vs. INVITATION HOMES DL |
| American Homes vs. Equity Residential | American Homes vs. AvalonBay Communities | American Homes vs. UDR Inc | American Homes vs. INVITATION HOMES DL |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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