Correlation Between American Homes and Invitation Homes

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

Diversification Opportunities for American Homes and Invitation Homes

0.92

Correlation Coefficient

American Homes  Invitation Homes

Almost no diversification

The 3 months correlation between American and Invitation is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Invitation Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invitation Homes 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 Invitation Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invitation Homes has no effect on the direction of American Homes i.e., American Homes and Invitation Homes go up and down completely randomly.

Pair Corralation between American Homes and Invitation Homes

Considering the 90-day investment horizon American Homes 4 is expected to generate 0.89 times more return on investment than Invitation Homes. However, American Homes 4 is 1.13 times less risky than Invitation Homes. It trades about -0.11 of its potential returns per unit of risk. Invitation Homes is currently generating about -0.14 per unit of risk. If you would invest  3,935  in American Homes 4 on September 20, 2024 and sell it today you would lose (339.00) from holding American Homes 4 or give up 8.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

American Homes 4  vs.  Invitation Homes

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. Despite latest inconsistent performance, the Stock's primary indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Invitation Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invitation Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with American Homes and Invitation Homes

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

The idea behind American Homes 4 and Invitation Homes 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.