Correlation Between Equity LifeStyle and American Homes
Can any of the company-specific risk be diversified away by investing in both Equity LifeStyle 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 Equity LifeStyle and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity LifeStyle Properties and American Homes 4, you can compare the effects of market volatilities on Equity LifeStyle 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 Equity LifeStyle with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity LifeStyle and American Homes.
Diversification Opportunities for Equity LifeStyle and American Homes
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Equity and American is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Equity LifeStyle Properties 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 Equity LifeStyle 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 Equity LifeStyle Properties 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 Equity LifeStyle i.e., Equity LifeStyle and American Homes go up and down completely randomly.
Pair Corralation between Equity LifeStyle and American Homes
Assuming the 90 days horizon Equity LifeStyle Properties is expected to under-perform the American Homes. But the stock apears to be less risky and, when comparing its historical volatility, Equity LifeStyle Properties is 1.56 times less risky than American Homes. The stock trades about 0.0 of its potential returns per unit of risk. The American Homes 4 is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 3,515 in American Homes 4 on September 24, 2024 and sell it today you would lose (15.00) from holding American Homes 4 or give up 0.43% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Equity LifeStyle Properties vs. American Homes 4
Performance |
Timeline |
Equity LifeStyle Pro |
American Homes 4 |
Equity LifeStyle and American Homes Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Equity LifeStyle and American Homes
The main advantage of trading using opposite Equity LifeStyle and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity LifeStyle 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.Equity LifeStyle vs. Equity Residential | Equity LifeStyle vs. AvalonBay Communities | Equity LifeStyle vs. UDR Inc | Equity LifeStyle vs. INVITATION HOMES DL |
American Homes vs. Fevertree Drinks PLC | American Homes vs. MAGNUM MINING EXP | American Homes vs. United Breweries Co | American Homes vs. THAI BEVERAGE |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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