Correlation Between InterContinental and American Homes

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

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

Diversification Opportunities for InterContinental and American Homes

-0.34

Correlation Coefficient

InterContinental  American Homes

Very good diversification

The 3 months correlation between InterContinental and American is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group 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 InterContinental 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 InterContinental Hotels Group 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 InterContinental i.e., InterContinental and American Homes go up and down completely randomly.

Pair Corralation between InterContinental and American Homes

Assuming the 90 days trading horizon InterContinental Hotels Group is expected to generate 0.96 times more return on investment than American Homes. However, InterContinental Hotels Group is 1.04 times less risky than American Homes. It trades about 0.31 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.09 per unit of risk. If you would invest  802,000  in InterContinental Hotels Group on September 20, 2024 and sell it today you would earn a total of  203,000  from holding InterContinental Hotels Group or generate 25.31% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  American Homes 4

InterContinental Hotels

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, InterContinental exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with InterContinental and American Homes

The main advantage of trading using opposite InterContinental and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InterContinental 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.

The idea behind InterContinental Hotels Group and American Homes 4 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.