Correlation Between Extra Space and Apartment Investment

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

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

Diversification Opportunities for Extra Space and Apartment Investment

0.62

Correlation Coefficient

Extra Space  Apartment Investment

Poor diversification

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

Pair Corralation between Extra Space and Apartment Investment

Assuming the 90 days trading horizon Extra Space Storage is expected to generate 1.23 times more return on investment than Apartment Investment. However, Extra Space is 1.23 times more volatile than Apartment Investment and. It trades about 0.03 of its potential returns per unit of risk. Apartment Investment and is currently generating about 0.03 per unit of risk. 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

Extra Space Storage  vs.  Apartment Investment and

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.

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.

Pair Trading with Extra Space and Apartment Investment

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

The idea behind Extra Space Storage and Apartment Investment and 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.