Correlation Between Essential Properties and Elme Communities

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

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

Diversification Opportunities for Essential Properties and Elme Communities

0.56

Correlation Coefficient

Essential Properties  Elme Communities

Very weak diversification

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

Pair Corralation between Essential Properties and Elme Communities

Given the investment horizon of 90 days Essential Properties is expected to generate 2.88 times less return on investment than Elme Communities. But when comparing it to its historical volatility, Essential Properties Realty is 1.39 times less risky than Elme Communities. It trades about 0.07 of its potential returns per unit of risk. Elme Communities is currently generating about 0.14 of returns per unit of risk over similar time horizon. 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

Essential Properties Realty  vs.  Elme Communities

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.

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.

Pair Trading with Essential Properties and Elme Communities

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

The idea behind Essential Properties Realty and Elme 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.