Correlation Between Unite Group and American Homes
Can any of the company-specific risk be diversified away by investing in both Unite Group 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 Unite Group and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Unite Group PLC and American Homes 4, you can compare the effects of market volatilities on Unite Group 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 Unite Group with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unite Group and American Homes.
Diversification Opportunities for Unite Group and American Homes
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Unite and American is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Unite Group 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 Unite Group 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 Unite Group 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 Unite Group i.e., Unite Group and American Homes go up and down completely randomly.
Pair Corralation between Unite Group and American Homes
Assuming the 90 days trading horizon Unite Group is expected to generate 4.7 times less return on investment than American Homes. But when comparing it to its historical volatility, Unite Group PLC is 1.01 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 0.05 of returns per unit of risk over similar time horizon. If you would invest 3,046 in American Homes 4 on August 28, 2024 and sell it today you would earn a total of 766.00 from holding American Homes 4 or generate 25.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 82.9% |
| Values | Daily Returns |
Unite Group PLC vs. American Homes 4
Performance |
| Timeline |
| Unite Group PLC |
| American Homes 4 |
Unite Group and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Unite Group and American Homes
The main advantage of trading using opposite Unite Group and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unite Group 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.| Unite Group vs. American Homes 4 | Unite Group vs. Pets at Home | Unite Group vs. International Biotechnology Trust | Unite Group vs. Dentsply Sirona |
| American Homes vs. Samsung Electronics Co | American Homes vs. Samsung Electronics Co | American Homes vs. Hyundai Motor | American Homes vs. Toyota Motor 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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