Correlation Between American Homes and Cornish Metals

Can any of the company-specific risk be diversified away by investing in both American Homes and Cornish Metals 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 Cornish Metals 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 Cornish Metals, you can compare the effects of market volatilities on American Homes and Cornish Metals 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 Cornish Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Cornish Metals.

Diversification Opportunities for American Homes and Cornish Metals

-0.57

Correlation Coefficient

American Homes  Cornish Metals

Excellent diversification

The 3 months correlation between American and Cornish is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Cornish Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cornish Metals 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 Cornish Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cornish Metals has no effect on the direction of American Homes i.e., American Homes and Cornish Metals go up and down completely randomly.

Pair Corralation between American Homes and Cornish Metals

Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the Cornish Metals. But the stock apears to be less risky and, when comparing its historical volatility, American Homes 4 is 2.92 times less risky than Cornish Metals. The stock trades about -0.09 of its potential returns per unit of risk. The Cornish Metals is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  640.00  in Cornish Metals on September 21, 2024 and sell it today you would earn a total of  235.00  from holding Cornish Metals or generate 36.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

American Homes 4  vs.  Cornish Metals

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.

Cornish Metals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cornish Metals are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Cornish Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Homes and Cornish Metals

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

The idea behind American Homes 4 and Cornish Metals 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.