Correlation Between Essex Property and Sotherly Hotels

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

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

Diversification Opportunities for Essex Property and Sotherly Hotels

-0.35

Correlation Coefficient

Essex Property  Sotherly Hotels

Very good diversification

The 3 months correlation between Essex and Sotherly is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Essex Property Trust and Sotherly Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels and Essex Property 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 Essex Property Trust are associated (or correlated) with Sotherly Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sotherly Hotels has no effect on the direction of Essex Property i.e., Essex Property and Sotherly Hotels go up and down completely randomly.

Pair Corralation between Essex Property and Sotherly Hotels

Considering the 90-day investment horizon Essex Property Trust is expected to generate 0.26 times more return on investment than Sotherly Hotels. However, Essex Property Trust is 3.82 times less risky than Sotherly Hotels. It trades about -0.03 of its potential returns per unit of risk. Sotherly Hotels is currently generating about -0.02 per unit of risk. If you would invest  30,764  in Essex Property Trust on September 12, 2024 and sell it today you would lose (1,001) from holding Essex Property Trust or give up 3.25% of portfolio value over 90 days.

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

Essex Property Trust  vs.  Sotherly Hotels

Essex Property Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essex Property Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Essex Property is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Sotherly Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotherly Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Essex Property and Sotherly Hotels

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

The idea behind Essex Property Trust and Sotherly Hotels 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.