Correlation Between Equity Residential and Essex Property

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

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

Diversification Opportunities for Equity Residential and Essex Property

0.76

Correlation Coefficient

Equity Residential  Essex Property

Poor diversification

The 3 months correlation between Equity and Essex is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Equity Residential and Essex Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essex 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 Essex Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essex Property Trust has no effect on the direction of Equity Residential i.e., Equity Residential and Essex Property go up and down completely randomly.

Pair Corralation between Equity Residential and Essex Property

Considering the 90-day investment horizon Equity Residential is expected to generate 5.67 times less return on investment than Essex Property. But when comparing it to its historical volatility, Equity Residential is 1.07 times less risky than Essex Property. It trades about 0.02 of its potential returns per unit of risk. Essex Property Trust is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  28,037  in Essex Property Trust on December 28, 2024 and sell it today you would earn a total of  2,443  from holding Essex Property Trust or generate 8.71% 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.  Essex Property Trust

Equity Residential

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Residential are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Equity Residential is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Essex Property Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Essex Property Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Essex Property may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Equity Residential and Essex Property

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

The idea behind Equity Residential and Essex 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.