Correlation Between Essex Property and China DatangRenewable

Can any of the company-specific risk be diversified away by investing in both Essex Property and China DatangRenewable 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 China DatangRenewable 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 China Datang, you can compare the effects of market volatilities on Essex Property and China DatangRenewable 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 China DatangRenewable. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essex Property and China DatangRenewable.

Diversification Opportunities for Essex Property and China DatangRenewable

0.33

Correlation Coefficient

Essex Property  China DatangRenewable

Weak diversification

The 3 months correlation between Essex and China is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Essex Property Trust and China Datang in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China DatangRenewable 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 China DatangRenewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China DatangRenewable has no effect on the direction of Essex Property i.e., Essex Property and China DatangRenewable go up and down completely randomly.

Pair Corralation between Essex Property and China DatangRenewable

Assuming the 90 days horizon Essex Property is expected to generate 2.28 times less return on investment than China DatangRenewable. But when comparing it to its historical volatility, Essex Property Trust is 3.1 times less risky than China DatangRenewable. It trades about 0.06 of its potential returns per unit of risk. China Datang is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  15.00  in China Datang on October 10, 2024 and sell it today you would earn a total of  9.00  from holding China Datang or generate 60.0% return on investment over 90 days.

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

Essex Property Trust  vs.  China Datang

Essex Property Trust

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Essex Property Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Essex Property is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

China DatangRenewable

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Datang are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China DatangRenewable reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Essex Property and China DatangRenewable

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

The idea behind Essex Property Trust and China Datang 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.