Correlation Between Essex Property and American Homes
Can any of the company-specific risk be diversified away by investing in both Essex Property 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 Essex Property and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Essex Property Trust and American Homes 4, you can compare the effects of market volatilities on Essex Property 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 Essex Property with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essex Property and American Homes.
Diversification Opportunities for Essex Property and American Homes
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Essex and American is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Essex Property Trust 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 Essex Property 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 Essex Property Trust 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 Essex Property i.e., Essex Property and American Homes go up and down completely randomly.
Pair Corralation between Essex Property and American Homes
Considering the 90-day investment horizon Essex Property Trust is expected to generate 1.13 times more return on investment than American Homes. However, Essex Property is 1.13 times more volatile than American Homes 4. It trades about 0.07 of its potential returns per unit of risk. American Homes 4 is currently generating about 0.03 per unit of risk. 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 |
Essex Property Trust vs. American Homes 4
Performance |
| Timeline |
| Essex Property Trust |
| American Homes 4 |
Essex Property and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Essex Property and American Homes
The main advantage of trading using opposite Essex Property and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essex Property 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.| Essex Property vs. Equity Residential | Essex Property vs. Mid America Apartment Communities | Essex Property vs. Camden Property Trust | Essex Property vs. UDR Inc |
| American Homes vs. Sun Communities | American Homes vs. Clipper Realty | American Homes vs. UDR Inc | American Homes vs. UMH Properties |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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