Correlation Between American Homes and Essex Property
Can any of the company-specific risk be diversified away by investing in both American Homes and Essex Property 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 American Homes and Essex Property into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Homes 4 and Essex Property Trust, you can compare the effects of market volatilities on American Homes and Essex Property 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 American Homes with a short position of Essex Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Essex Property.
Diversification Opportunities for American Homes and Essex Property
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between American and Essex is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Essex Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essex Property Trust and American Homes 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 American Homes 4 are associated (or correlated) with Essex Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essex Property Trust has no effect on the direction of American Homes i.e., American Homes and Essex Property go up and down completely randomly.
Pair Corralation between American Homes and Essex Property
Considering the 90-day investment horizon American Homes is expected to generate 2.57 times less return on investment than Essex Property. But when comparing it to its historical volatility, American Homes 4 is 1.13 times less risky than Essex Property. It trades about 0.03 of its potential returns per unit of risk. Essex Property Trust is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 21,986 in Essex Property Trust on August 31, 2024 and sell it today you would earn a total of 9,060 from holding Essex Property Trust or generate 41.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Homes 4 vs. Essex Property Trust
Performance |
| Timeline |
| American Homes 4 |
| Essex Property Trust |
American Homes and Essex Property Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Homes and Essex Property
The main advantage of trading using opposite American Homes and Essex Property positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Homes position performs unexpectedly, Essex Property 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 Essex Property will offset losses from the drop in Essex Property's long position.| American Homes vs. Sun Communities | American Homes vs. Clipper Realty | American Homes vs. UDR Inc | American Homes vs. UMH Properties |
| Essex Property vs. Equity Residential | Essex Property vs. Mid America Apartment Communities | Essex Property vs. Camden Property Trust | Essex Property vs. UDR Inc |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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