Correlation Between Equity Residential and Elme Communities

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

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

Diversification Opportunities for Equity Residential and Elme Communities

0.33

Correlation Coefficient

Equity Residential  Elme Communities

Weak diversification

The 3 months correlation between Equity and Elme is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Equity Residential and Elme Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elme Communities 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 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 Equity Residential i.e., Equity Residential and Elme Communities go up and down completely randomly.

Pair Corralation between Equity Residential and Elme Communities

Considering the 90-day investment horizon Equity Residential is expected to under-perform the Elme Communities. But the stock apears to be less risky and, when comparing its historical volatility, Equity Residential is 1.28 times less risky than Elme Communities. The stock trades about -0.11 of its potential returns per unit of risk. The Elme Communities is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,595  in Elme Communities on September 19, 2024 and sell it today you would lose (5.00) from holding Elme Communities or give up 0.31% of portfolio value over 90 days.

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

Equity Residential  vs.  Elme Communities

Equity Residential

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equity Residential has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Equity Residential is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Elme Communities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elme Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Equity Residential and Elme Communities

The main advantage of trading using opposite Equity Residential and Elme Communities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Residential 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 Equity Residential 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.