Correlation Between Basic Materials and Essex Property
Can any of the company-specific risk be diversified away by investing in both Basic Materials 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 Basic Materials and Essex Property into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Essex Property Trust, you can compare the effects of market volatilities on Basic Materials 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 Basic Materials with a short position of Essex Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Essex Property.
Diversification Opportunities for Basic Materials and Essex Property
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Basic and Essex is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials 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 Basic Materials 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 Basic Materials 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 Basic Materials i.e., Basic Materials and Essex Property go up and down completely randomly.
Pair Corralation between Basic Materials and Essex Property
Assuming the 90 days trading horizon Basic Materials is expected to generate 2.78 times less return on investment than Essex Property. But when comparing it to its historical volatility, Basic Materials is 1.41 times less risky than Essex Property. It trades about 0.09 of its potential returns per unit of risk. Essex Property Trust is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 13,958 in Essex Property Trust on September 5, 2024 and sell it today you would earn a total of 5,327 from holding Essex Property Trust or generate 38.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.44% |
| Values | Daily Returns |
Basic Materials vs. Essex Property Trust
Performance |
| Timeline |
Basic Materials and Essex Property Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Essex Property Trust
Pair trading matchups for Essex Property
Pair Trading with Basic Materials and Essex Property
The main advantage of trading using opposite Basic Materials and Essex Property positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials 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.| Basic Materials vs. Costco Wholesale | Basic Materials vs. Paycom Software | Basic Materials vs. American Airlines Group | Basic Materials vs. UnitedHealth Group Incorporated |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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