Correlation Between Morgan Advanced and American Homes

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Can any of the company-specific risk be diversified away by investing in both Morgan Advanced 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 Morgan Advanced and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Morgan Advanced Materials and American Homes 4, you can compare the effects of market volatilities on Morgan Advanced 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 Morgan Advanced with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morgan Advanced and American Homes.

Diversification Opportunities for Morgan Advanced and American Homes

MorganAmericanDiversified AwayMorganAmericanDiversified Away100%
0.41
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Morgan and American is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Advanced Materials 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 Morgan Advanced 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 Morgan Advanced Materials 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 Morgan Advanced i.e., Morgan Advanced and American Homes go up and down completely randomly.

Pair Corralation between Morgan Advanced and American Homes

Assuming the 90 days trading horizon Morgan Advanced Materials is expected to generate 0.72 times more return on investment than American Homes. However, Morgan Advanced Materials is 1.39 times less risky than American Homes. It trades about 0.2 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.18 per unit of risk. If you would invest  25,900  in Morgan Advanced Materials on September 28, 2024 and sell it today you would earn a total of  900.00  from holding Morgan Advanced Materials or generate 3.47% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.24%
ValuesDaily Returns

Morgan Advanced Materials  vs.  American Homes 4

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -10-50
JavaScript chart by amCharts 3.21.15MGAM 0HEJ
       Timeline  
Morgan Advanced Materials 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Morgan Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Morgan Advanced is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
JavaScript chart by amCharts 3.21.15NovDecDec235240245250255260265270275
American Homes 4 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec3535.53636.53737.53838.539

Morgan Advanced and American Homes Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.84-2.88-1.91-0.950.00.941.912.893.864.83 0.050.100.150.200.25
JavaScript chart by amCharts 3.21.15MGAM 0HEJ
       Returns  

Pair Trading with Morgan Advanced and American Homes

The main advantage of trading using opposite Morgan Advanced and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morgan Advanced 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 Morgan Advanced Materials 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.

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