Correlation Between Continental and Mid America

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

By analyzing existing cross correlation between Camden Property Trust and Mid America Apartment Communities, you can compare the effects of market volatilities on Continental and Mid America 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 Continental with a short position of Mid America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Continental and Mid America.

Diversification Opportunities for Continental and Mid America

0.94

Correlation Coefficient

Continental  Mid America

Almost no diversification

The 3 months correlation between Continental and Mid is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Camden Property Trust and Mid America Apartment Communit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid America Apartment and Continental 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 Camden Property Trust are associated (or correlated) with Mid America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid America Apartment has no effect on the direction of Continental i.e., Continental and Mid America go up and down completely randomly.

Pair Corralation between Continental and Mid America

Assuming the 90 days horizon Camden Property Trust is expected to under-perform the Mid America. In addition to that, Continental is 1.07 times more volatile than Mid America Apartment Communities. It trades about -0.27 of its total potential returns per unit of risk. Mid America Apartment Communities is currently generating about -0.23 per unit of volatility. If you would invest  15,400  in Mid America Apartment Communities on September 24, 2024 and sell it today you would lose (710.00) from holding Mid America Apartment Communities or give up 4.61% of portfolio value over 90 days.

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

Camden Property Trust  vs.  Mid America Apartment Communit

Camden Property Trust

Risk-Adjusted Performance

0 of 100

Very Weak

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

Mid America Apartment

Risk-Adjusted Performance

2 of 100

Insignificant

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

Pair Trading with Continental and Mid America

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

The idea behind Camden Property Trust and Mid America Apartment Communities 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.