Correlation Between American Homes and Lowland Investment

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

Diversification Opportunities for American Homes and Lowland Investment

0.39

Correlation Coefficient

American Homes  Lowland Investment

Weak diversification

The 3 months correlation between American and Lowland is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Lowland Investment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lowland Investment 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 Lowland Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lowland Investment has no effect on the direction of American Homes i.e., American Homes and Lowland Investment go up and down completely randomly.

Pair Corralation between American Homes and Lowland Investment

Assuming the 90 days trading horizon American Homes 4 is expected to under-perform the Lowland Investment. In addition to that, American Homes is 1.44 times more volatile than Lowland Investment Co. It trades about -0.16 of its total potential returns per unit of risk. Lowland Investment Co is currently generating about -0.11 per unit of volatility. If you would invest  12,475  in Lowland Investment Co on September 29, 2024 and sell it today you would lose (225.00) from holding Lowland Investment Co or give up 1.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

American Homes 4  vs.  Lowland Investment Co

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 comparatively stable basic indicators, American Homes is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Lowland Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lowland Investment Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Lowland Investment is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with American Homes and Lowland Investment

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

The idea behind American Homes 4 and Lowland Investment Co 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.