Correlation Between Equity Commonwealth and Vornado Realty

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

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

Diversification Opportunities for Equity Commonwealth and Vornado Realty

-0.19

Correlation Coefficient

Equity Commonwealth  Vornado Realty

Good diversification

The 3 months correlation between Equity and Vornado is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Equity Commonwealth and Vornado Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vornado Realty Trust and Equity Commonwealth 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 Equity Commonwealth are associated (or correlated) with Vornado Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vornado Realty Trust has no effect on the direction of Equity Commonwealth i.e., Equity Commonwealth and Vornado Realty go up and down completely randomly.

Pair Corralation between Equity Commonwealth and Vornado Realty

Assuming the 90 days trading horizon Equity Commonwealth is expected to generate 4.68 times less return on investment than Vornado Realty. But when comparing it to its historical volatility, Equity Commonwealth is 4.37 times less risky than Vornado Realty. It trades about 0.09 of its potential returns per unit of risk. Vornado Realty Trust is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,422  in Vornado Realty Trust on October 2, 2024 and sell it today you would earn a total of  329.00  from holding Vornado Realty Trust or generate 23.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.11%
Values	Daily Returns

Equity Commonwealth  vs.  Vornado Realty Trust

Equity Commonwealth

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Equity Commonwealth has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Equity Commonwealth is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Vornado Realty Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vornado Realty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vornado Realty is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Equity Commonwealth and Vornado Realty

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

The idea behind Equity Commonwealth and Vornado Realty Trust 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.