Correlation Between DFS Furniture and American Homes
Can any of the company-specific risk be diversified away by investing in both DFS Furniture 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 DFS Furniture and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DFS Furniture PLC and American Homes 4, you can compare the effects of market volatilities on DFS Furniture 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 DFS Furniture with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of DFS Furniture and American Homes.
Diversification Opportunities for DFS Furniture and American Homes
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between DFS and American is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding DFS Furniture PLC 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 DFS Furniture 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 DFS Furniture PLC 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 DFS Furniture i.e., DFS Furniture and American Homes go up and down completely randomly.
Pair Corralation between DFS Furniture and American Homes
Assuming the 90 days trading horizon DFS Furniture is expected to generate 1.37 times less return on investment than American Homes. But when comparing it to its historical volatility, DFS Furniture PLC is 1.18 times less risky than American Homes. It trades about 0.01 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 3,560 in American Homes 4 on August 25, 2024 and sell it today you would earn a total of 0.00 from holding American Homes 4 or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.65% |
| Values | Daily Returns |
DFS Furniture PLC vs. American Homes 4
Performance |
| Timeline |
| DFS Furniture PLC |
| American Homes 4 |
DFS Furniture and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with DFS Furniture and American Homes
The main advantage of trading using opposite DFS Furniture and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DFS Furniture 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.| DFS Furniture vs. Apple Inc | DFS Furniture vs. Apple Inc | DFS Furniture vs. Apple Inc | DFS Furniture vs. Apple Inc |
| American Homes vs. INVITATION HOMES DL | American Homes vs. Superior Plus Corp | American Homes vs. NMI Holdings | American Homes vs. Origin Agritech |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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