Correlation Between Primary Health and American Homes

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

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

Diversification Opportunities for Primary Health and American Homes

0.5

Correlation Coefficient

Primary Health  American Homes

Very weak diversification

The 3 months correlation between Primary and American is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Primary Health 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 Primary Health 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 Primary Health 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 Primary Health i.e., Primary Health and American Homes go up and down completely randomly.

Pair Corralation between Primary Health and American Homes

Assuming the 90 days trading horizon Primary Health Properties is expected to under-perform the American Homes. But the stock apears to be less risky and, when comparing its historical volatility, Primary Health Properties is 1.21 times less risky than American Homes. The stock trades about -0.07 of its potential returns per unit of risk. The American Homes 4 is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,741  in American Homes 4 on September 22, 2024 and sell it today you would lose (44.00) from holding American Homes 4 or give up 1.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Primary Health Properties  vs.  American Homes 4

Primary Health Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Primary Health Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Primary Health and American Homes

The main advantage of trading using opposite Primary Health and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Primary Health 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 Primary Health Properties 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.