Correlation Between Apartment Investment and Extra Space

Can any of the company-specific risk be diversified away by investing in both Apartment Investment and Extra Space 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 Apartment Investment and Extra Space into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Apartment Investment and and Extra Space Storage, you can compare the effects of market volatilities on Apartment Investment and Extra Space 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 Apartment Investment with a short position of Extra Space. Check out your portfolio center. Please also check ongoing floating volatility patterns of Apartment Investment and Extra Space.

Diversification Opportunities for Apartment Investment and Extra Space

0.62

Correlation Coefficient

Apartment Investment  Extra Space

Poor diversification

The 3 months correlation between Apartment and Extra is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Apartment Investment and and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage and Apartment Investment 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 Apartment Investment and are associated (or correlated) with Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Apartment Investment i.e., Apartment Investment and Extra Space go up and down completely randomly.

Pair Corralation between Apartment Investment and Extra Space

Assuming the 90 days trading horizon Apartment Investment is expected to generate 1.05 times less return on investment than Extra Space. But when comparing it to its historical volatility, Apartment Investment and is 1.23 times less risky than Extra Space. It trades about 0.03 of its potential returns per unit of risk. Extra Space Storage is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  19,300  in Extra Space Storage on September 25, 2024 and sell it today you would earn a total of  3,240  from holding Extra Space Storage or generate 16.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	79.72%
Values	Daily Returns

Apartment Investment and  vs.  Extra Space Storage

Apartment Investment and

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Apartment Investment and has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Apartment Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Extra Space Storage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Apartment Investment and Extra Space

The main advantage of trading using opposite Apartment Investment and Extra Space positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apartment Investment position performs unexpectedly, Extra Space 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 Extra Space will offset losses from the drop in Extra Space's long position.

The idea behind Apartment Investment and and Extra Space Storage 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.