Correlation Between Software Circle and American Homes
Can any of the company-specific risk be diversified away by investing in both Software Circle 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 Software Circle and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Software Circle plc and American Homes 4, you can compare the effects of market volatilities on Software Circle 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 Software Circle with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Software Circle and American Homes.
Diversification Opportunities for Software Circle and American Homes
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between Software and American is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Software Circle 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 Software Circle 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 Software Circle 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 Software Circle i.e., Software Circle and American Homes go up and down completely randomly.
Pair Corralation between Software Circle and American Homes
Assuming the 90 days trading horizon Software Circle plc is expected to generate 0.33 times more return on investment than American Homes. However, Software Circle plc is 3.07 times less risky than American Homes. It trades about 0.27 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.17 per unit of risk. If you would invest 2,300 in Software Circle plc on October 11, 2024 and sell it today you would earn a total of 50.00 from holding Software Circle plc or generate 2.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Software Circle plc vs. American Homes 4
Performance |
| Timeline |
| Software Circle plc |
| American Homes 4 |
Software Circle and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Software Circle and American Homes
The main advantage of trading using opposite Software Circle and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Software Circle 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.| Software Circle vs. Europa Metals | Software Circle vs. First Class Metals | Software Circle vs. European Metals Holdings | Software Circle vs. Jacquet Metal Service |
| American Homes vs. Spotify Technology SA | American Homes vs. Axway Software SA | American Homes vs. Software Circle plc | American Homes vs. National Beverage Corp |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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