Correlation Between INVITATION HOMES and Essex Property

Can any of the company-specific risk be diversified away by investing in both INVITATION 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 INVITATION 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 INVITATION HOMES DL and Essex Property Trust, you can compare the effects of market volatilities on INVITATION 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 INVITATION HOMES with a short position of Essex Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of INVITATION HOMES and Essex Property.

Diversification Opportunities for INVITATION HOMES and Essex Property

0.64

Correlation Coefficient

INVITATION HOMES  Essex Property

Poor diversification

The 3 months correlation between INVITATION and Essex is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding INVITATION HOMES DL 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 INVITATION 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 INVITATION HOMES DL 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 INVITATION HOMES i.e., INVITATION HOMES and Essex Property go up and down completely randomly.

Pair Corralation between INVITATION HOMES and Essex Property

Assuming the 90 days horizon INVITATION HOMES DL is expected to under-perform the Essex Property. In addition to that, INVITATION HOMES is 1.14 times more volatile than Essex Property Trust. It trades about -0.01 of its total potential returns per unit of risk. Essex Property Trust is currently generating about 0.03 per unit of volatility. If you would invest  27,610  in Essex Property Trust on September 12, 2024 and sell it today you would earn a total of  620.00  from holding Essex Property Trust or generate 2.25% return on investment over 90 days.

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

INVITATION HOMES DL  vs.  Essex Property Trust

INVITATION HOMES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INVITATION HOMES DL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, INVITATION HOMES is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Essex Property Trust

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Essex Property Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Essex Property is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with INVITATION HOMES and Essex Property

The main advantage of trading using opposite INVITATION HOMES and Essex Property positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INVITATION 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.

The idea behind INVITATION HOMES DL and Essex Property Trust 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.