Correlation Between Equity Residential and Essex Property
Can any of the company-specific risk be diversified away by investing in both Equity Residential 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 Equity Residential and Essex Property into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Residential and Essex Property Trust, you can compare the effects of market volatilities on Equity Residential 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 Equity Residential with a short position of Essex Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Residential and Essex Property.
Diversification Opportunities for Equity Residential and Essex Property
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Equity and Essex is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Equity Residential 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 Equity Residential 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 Equity Residential 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 Equity Residential i.e., Equity Residential and Essex Property go up and down completely randomly.
Pair Corralation between Equity Residential and Essex Property
Considering the 90-day investment horizon Equity Residential is expected to under-perform the Essex Property. But the stock apears to be less risky and, when comparing its historical volatility, Equity Residential is 1.03 times less risky than Essex Property. The stock trades about -0.04 of its potential returns per unit of risk. The Essex Property Trust is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 29,760 in Essex Property Trust on November 2, 2024 and sell it today you would lose (1,644) from holding Essex Property Trust or give up 5.52% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Equity Residential vs. Essex Property Trust
Performance |
| Timeline |
| Equity Residential |
| Essex Property Trust |
Equity Residential and Essex Property Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Equity Residential and Essex Property
The main advantage of trading using opposite Equity Residential and Essex Property positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Residential 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.| Equity Residential vs. Essex Property Trust | Equity Residential vs. Mid America Apartment Communities | Equity Residential vs. Camden Property Trust | Equity Residential vs. UDR Inc |
| 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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