Correlation Between European Residential and PHX Energy

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

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

Diversification Opportunities for European Residential and PHX Energy

-0.21

Correlation Coefficient

European Residential  PHX Energy

Very good diversification

The 3 months correlation between European and PHX is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and PHX Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHX Energy Services and European 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 European Residential Real are associated (or correlated) with PHX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHX Energy Services has no effect on the direction of European Residential i.e., European Residential and PHX Energy go up and down completely randomly.

Pair Corralation between European Residential and PHX Energy

Assuming the 90 days trading horizon European Residential Real is expected to generate 1.16 times more return on investment than PHX Energy. However, European Residential is 1.16 times more volatile than PHX Energy Services. It trades about 0.08 of its potential returns per unit of risk. PHX Energy Services is currently generating about 0.01 per unit of risk. If you would invest  233.00  in European Residential Real on December 30, 2024 and sell it today you would earn a total of  19.00  from holding European Residential Real or generate 8.15% return on investment over 90 days.

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

European Residential Real  vs.  PHX Energy Services

European Residential Real

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential may actually be approaching a critical reversion point that can send shares even higher in April 2025.

PHX Energy Services

Risk-Adjusted Performance

Very Weak

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

Pair Trading with European Residential and PHX Energy

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

The idea behind European Residential Real and PHX Energy Services 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.