Correlation Between Office Properties and American Homes

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

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

Diversification Opportunities for Office Properties and American Homes

-0.72

Correlation Coefficient

Office Properties  American Homes

Pay attention - limited upside

The 3 months correlation between Office and American is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Office Properties Income 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 Office Properties 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 Office Properties Income 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 Office Properties i.e., Office Properties and American Homes go up and down completely randomly.

Pair Corralation between Office Properties and American Homes

Considering the 90-day investment horizon Office Properties Income is expected to generate 5.05 times more return on investment than American Homes. However, Office Properties is 5.05 times more volatile than American Homes 4. It trades about 0.05 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.07 per unit of risk. If you would invest  196.00  in Office Properties Income on February 1, 2024 and sell it today you would earn a total of  6.00  from holding Office Properties Income or generate 3.06% return on investment over 90 days.

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

Office Properties Income  vs.  American Homes 4

Office Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Office Properties Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

American Homes 4

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong primary indicators, American Homes is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Office Properties and American Homes

The main advantage of trading using opposite Office Properties and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Office Properties 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 Office Properties Income 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.