Correlation Between Foresight Environmental and American Homes
Can any of the company-specific risk be diversified away by investing in both Foresight Environmental 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 Foresight Environmental and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Foresight Environmental Infrastructure and American Homes 4, you can compare the effects of market volatilities on Foresight Environmental 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 Foresight Environmental with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foresight Environmental and American Homes.
Diversification Opportunities for Foresight Environmental and American Homes
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Foresight and American is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Foresight Environmental Infras 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 Foresight Environmental 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 Foresight Environmental Infrastructure 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 Foresight Environmental i.e., Foresight Environmental and American Homes go up and down completely randomly.
Pair Corralation between Foresight Environmental and American Homes
Assuming the 90 days trading horizon Foresight Environmental Infrastructure is expected to under-perform the American Homes. But the stock apears to be less risky and, when comparing its historical volatility, Foresight Environmental Infrastructure is 1.15 times less risky than American Homes. The stock trades about -0.05 of its potential returns per unit of risk. The American Homes 4 is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 2,824 in American Homes 4 on December 11, 2024 and sell it today you would earn a total of 809.00 from holding American Homes 4 or generate 28.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.36% |
| Values | Daily Returns |
Foresight Environmental Infras vs. American Homes 4
Performance |
| Timeline |
| Foresight Environmental |
| American Homes 4 |
Foresight Environmental and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Foresight Environmental and American Homes
The main advantage of trading using opposite Foresight Environmental and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Foresight Environmental 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.| Foresight Environmental vs. Westlake Chemical Corp | ||
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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 Stocks Directory module to find actively traded stocks across global markets.
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