Correlation Between Equity Residential and Continental

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

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

Diversification Opportunities for Equity Residential and Continental

0.72

Correlation Coefficient

Equity Residential  Continental

Poor diversification

The 3 months correlation between Equity and Continental is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Equity Residential and Camden Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Camden Property Trust and Equity Residential 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 Residential are associated (or correlated) with Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Camden Property Trust has no effect on the direction of Equity Residential i.e., Equity Residential and Continental go up and down completely randomly.

Pair Corralation between Equity Residential and Continental

Assuming the 90 days horizon Equity Residential is expected to under-perform the Continental. In addition to that, Equity Residential is 1.03 times more volatile than Camden Property Trust. It trades about -0.01 of its total potential returns per unit of risk. Camden Property Trust is currently generating about 0.05 per unit of volatility. If you would invest  10,900  in Camden Property Trust on December 28, 2024 and sell it today you would earn a total of  400.00  from holding Camden Property Trust or generate 3.67% return on investment over 90 days.

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

Equity Residential  vs.  Camden Property Trust

Equity Residential

Risk-Adjusted Performance

Very Weak

Over the last 90 days Equity Residential has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Equity Residential is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Camden Property Trust

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Camden Property Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Continental is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Equity Residential and Continental

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

The idea behind Equity Residential and Camden Property 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.