Correlation Between Extra Space and Ross Stores

Can any of the company-specific risk be diversified away by investing in both Extra Space and Ross Stores 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 Ross Stores 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 Ross Stores, you can compare the effects of market volatilities on Extra Space and Ross Stores 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 Ross Stores. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extra Space and Ross Stores.

Diversification Opportunities for Extra Space and Ross Stores

0.32

Correlation Coefficient

Extra Space  Ross Stores

Weak diversification

The 3 months correlation between Extra and Ross is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Extra Space Storage and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Extra Space i.e., Extra Space and Ross Stores go up and down completely randomly.

Pair Corralation between Extra Space and Ross Stores

Assuming the 90 days trading horizon Extra Space Storage is expected to generate 1.58 times more return on investment than Ross Stores. However, Extra Space is 1.58 times more volatile than Ross Stores. It trades about 0.06 of its potential returns per unit of risk. Ross Stores is currently generating about 0.08 per unit of risk. If you would invest  18,013  in Extra Space Storage on October 24, 2024 and sell it today you would earn a total of  4,471  from holding Extra Space Storage or generate 24.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	82.7%
Values	Daily Returns

Extra Space Storage  vs.  Ross Stores

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 somewhat strong basic indicators, Extra Space is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Ross Stores

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Extra Space and Ross Stores

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

The idea behind Extra Space Storage and Ross Stores 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.