Correlation Between Monks Investment and American Homes

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

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

Diversification Opportunities for Monks Investment and American Homes

-0.52

Correlation Coefficient

Monks Investment  American Homes

Excellent diversification

The 3 months correlation between Monks and American is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Monks Investment Trust 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 Monks Investment 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 Monks Investment Trust 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 Monks Investment i.e., Monks Investment and American Homes go up and down completely randomly.

Pair Corralation between Monks Investment and American Homes

Assuming the 90 days trading horizon Monks Investment Trust is expected to generate 0.77 times more return on investment than American Homes. However, Monks Investment Trust is 1.3 times less risky than American Homes. It trades about 0.16 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.01 per unit of risk. If you would invest  116,000  in Monks Investment Trust on August 30, 2024 and sell it today you would earn a total of  11,400  from holding Monks Investment Trust or generate 9.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Monks Investment Trust  vs.  American Homes 4

Monks Investment Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monks Investment Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Monks Investment may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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 comparatively stable basic indicators, American Homes is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Monks Investment and American Homes

The main advantage of trading using opposite Monks Investment and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monks Investment 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 Monks Investment Trust 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.