Correlation Between American Homes and Cardinal Health

Can any of the company-specific risk be diversified away by investing in both American Homes and Cardinal Health 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 American Homes and Cardinal Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Homes 4 and Cardinal Health, you can compare the effects of market volatilities on American Homes and Cardinal Health 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 American Homes with a short position of Cardinal Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Cardinal Health.

Diversification Opportunities for American Homes and Cardinal Health

-0.41

Correlation Coefficient

American Homes  Cardinal Health

Very good diversification

The 3 months correlation between American and Cardinal is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Cardinal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Health and American Homes 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 American Homes 4 are associated (or correlated) with Cardinal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Health has no effect on the direction of American Homes i.e., American Homes and Cardinal Health go up and down completely randomly.

Pair Corralation between American Homes and Cardinal Health

Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the Cardinal Health. But the stock apears to be less risky and, when comparing its historical volatility, American Homes 4 is 1.25 times less risky than Cardinal Health. The stock trades about -0.08 of its potential returns per unit of risk. The Cardinal Health is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  11,107  in Cardinal Health on September 22, 2024 and sell it today you would earn a total of  722.00  from holding Cardinal Health or generate 6.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

American Homes 4  vs.  Cardinal Health

American Homes 4

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Homes 4 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Cardinal Health

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cardinal Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with American Homes and Cardinal Health

The main advantage of trading using opposite American Homes and Cardinal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Cardinal Health 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 Cardinal Health will offset losses from the drop in Cardinal Health's long position.

The idea behind American Homes 4 and Cardinal Health 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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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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.