Correlation Between Skyline and Century Communities

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

By analyzing existing cross correlation between Skyline and Century Communities, you can compare the effects of market volatilities on Skyline and Century Communities 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 Skyline with a short position of Century Communities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Skyline and Century Communities.

Diversification Opportunities for Skyline and Century Communities

-0.1

Correlation Coefficient

Skyline  Century Communities

Good diversification

The 3 months correlation between Skyline and Century is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Skyline and Century Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Communities and Skyline 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 Skyline are associated (or correlated) with Century Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Communities has no effect on the direction of Skyline i.e., Skyline and Century Communities go up and down completely randomly.

Pair Corralation between Skyline and Century Communities

Considering the 90-day investment horizon Skyline is expected to generate 0.85 times more return on investment than Century Communities. However, Skyline is 1.17 times less risky than Century Communities. It trades about 0.13 of its potential returns per unit of risk. Century Communities is currently generating about -0.03 per unit of risk. If you would invest  8,935  in Skyline on September 2, 2024 and sell it today you would earn a total of  1,438  from holding Skyline or generate 16.09% return on investment over 90 days.

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

Skyline  vs.  Century Communities

Skyline

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Skyline are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward-looking signals, Skyline showed solid returns over the last few months and may actually be approaching a breakup point.

Century Communities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Century Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Century Communities 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 Skyline and Century Communities

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

The idea behind Skyline and Century 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.