Correlation Between Invitation Homes and Mid America

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

By analyzing existing cross correlation between Invitation Homes and Mid America Apartment Communities, you can compare the effects of market volatilities on Invitation Homes and Mid America 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 Mid America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invitation Homes and Mid America.

Diversification Opportunities for Invitation Homes and Mid America

0.55

Correlation Coefficient

Invitation Homes  Mid America

Very weak diversification

The 3 months correlation between Invitation and Mid is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Invitation Homes and Mid America Apartment Communit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid America Apartment 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 Mid America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid America Apartment has no effect on the direction of Invitation Homes i.e., Invitation Homes and Mid America go up and down completely randomly.

Pair Corralation between Invitation Homes and Mid America

Given the investment horizon of 90 days Invitation Homes is expected to under-perform the Mid America. But the stock apears to be less risky and, when comparing its historical volatility, Invitation Homes is 1.0 times less risky than Mid America. The stock trades about -0.01 of its potential returns per unit of risk. The Mid America Apartment Communities is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  12,848  in Mid America Apartment Communities on September 20, 2024 and sell it today you would earn a total of  2,239  from holding Mid America Apartment Communities or generate 17.43% return on investment over 90 days.

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

Invitation Homes  vs.  Mid America Apartment Communit

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.

Mid America Apartment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mid America Apartment Communities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Mid America is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invitation Homes and Mid America

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

The idea behind Invitation Homes and Mid America Apartment Communities 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.