Correlation Between Elme Communities and Essential Properties

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

By analyzing existing cross correlation between Elme Communities and Essential Properties Realty, you can compare the effects of market volatilities on Elme Communities and Essential Properties 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 Elme Communities with a short position of Essential Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elme Communities and Essential Properties.

Diversification Opportunities for Elme Communities and Essential Properties

0.56

Correlation Coefficient

Elme Communities  Essential Properties

Very weak diversification

The 3 months correlation between Elme and Essential is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Elme Communities and Essential Properties Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Properties and Elme Communities 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 Elme Communities are associated (or correlated) with Essential Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Properties has no effect on the direction of Elme Communities i.e., Elme Communities and Essential Properties go up and down completely randomly.

Pair Corralation between Elme Communities and Essential Properties

Given the investment horizon of 90 days Elme Communities is expected to generate 1.39 times more return on investment than Essential Properties. However, Elme Communities is 1.39 times more volatile than Essential Properties Realty. It trades about 0.14 of its potential returns per unit of risk. Essential Properties Realty is currently generating about 0.07 per unit of risk. If you would invest  1,475  in Elme Communities on December 29, 2024 and sell it today you would earn a total of  252.00  from holding Elme Communities or generate 17.08% return on investment over 90 days.

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

Elme Communities  vs.  Essential Properties Realty

Elme Communities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elme Communities are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Elme Communities exhibited solid returns over the last few months and may actually be approaching a breakup point.

Essential Properties

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Essential Properties Realty are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Essential Properties is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Elme Communities and Essential Properties

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

The idea behind Elme Communities and Essential Properties Realty 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 Commodity Directory module to find actively traded commodities issued by global exchanges.