Correlation Between Extra Space and CubeSmart

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

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

Diversification Opportunities for Extra Space and CubeSmart

0.96

Correlation Coefficient

Extra Space  CubeSmart

Almost no diversification

The 3 months correlation between Extra and CubeSmart is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Extra Space Storage and CubeSmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CubeSmart and Extra Space 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 Extra Space Storage are associated (or correlated) with CubeSmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CubeSmart has no effect on the direction of Extra Space i.e., Extra Space and CubeSmart go up and down completely randomly.

Pair Corralation between Extra Space and CubeSmart

Considering the 90-day investment horizon Extra Space Storage is expected to generate 1.08 times more return on investment than CubeSmart. However, Extra Space is 1.08 times more volatile than CubeSmart. It trades about -0.01 of its potential returns per unit of risk. CubeSmart is currently generating about -0.02 per unit of risk. If you would invest  17,539  in Extra Space Storage on August 30, 2024 and sell it today you would lose (271.00) from holding Extra Space Storage or give up 1.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Extra Space Storage  vs.  CubeSmart

Extra Space Storage

Risk-Adjusted Performance

0 of 100

Very Weak

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

CubeSmart

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CubeSmart has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, CubeSmart is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Extra Space and CubeSmart

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

The idea behind Extra Space Storage and CubeSmart 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.