Correlation Between Samsung Electronics and American Homes
Can any of the company-specific risk be diversified away by investing in both Samsung Electronics 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 Samsung Electronics and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Samsung Electronics Co and American Homes 4, you can compare the effects of market volatilities on Samsung Electronics 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 Samsung Electronics with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Samsung Electronics and American Homes.
Diversification Opportunities for Samsung Electronics and American Homes
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Samsung and American is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Samsung Electronics Co 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 Samsung Electronics 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 Samsung Electronics Co 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 Samsung Electronics i.e., Samsung Electronics and American Homes go up and down completely randomly.
Pair Corralation between Samsung Electronics and American Homes
Assuming the 90 days trading horizon Samsung Electronics Co is expected to generate 1.34 times more return on investment than American Homes. However, Samsung Electronics is 1.34 times more volatile than American Homes 4. It trades about 0.06 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.22 per unit of risk. If you would invest 91,600 in Samsung Electronics Co on October 28, 2024 and sell it today you would earn a total of 1,950 from holding Samsung Electronics Co or generate 2.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Samsung Electronics Co vs. American Homes 4
Performance |
| Timeline |
| Samsung Electronics |
| American Homes 4 |
Samsung Electronics and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Samsung Electronics and American Homes
The main advantage of trading using opposite Samsung Electronics and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Samsung Electronics 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.The idea behind Samsung Electronics Co and American Homes 4 pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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