Correlation Between Invitation Homes and American Homes

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

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

Diversification Opportunities for Invitation Homes and American Homes

0.84

Correlation Coefficient

Invitation Homes  American Homes

Very poor diversification

The 3 months correlation between Invitation and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Invitation Homes 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 Invitation 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 Invitation Homes 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 Invitation Homes i.e., Invitation Homes and American Homes go up and down completely randomly.

Pair Corralation between Invitation Homes and American Homes

Given the investment horizon of 90 days Invitation Homes is expected to under-perform the American Homes. In addition to that, Invitation Homes is 1.15 times more volatile than American Homes 4. It trades about -0.11 of its total potential returns per unit of risk. American Homes 4 is currently generating about -0.07 per unit of volatility. If you would invest  3,955  in American Homes 4 on September 19, 2024 and sell it today you would lose (213.00) from holding American Homes 4 or give up 5.39% of portfolio value over 90 days.

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

Invitation Homes  vs.  American Homes 4

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.

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 fairly strong primary indicators, American Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Invitation Homes and American Homes

The main advantage of trading using opposite Invitation Homes and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invitation Homes 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 Invitation Homes 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.