Correlation Between First Industrial and Elme Communities

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

By analyzing existing cross correlation between First Industrial Realty and Elme Communities, you can compare the effects of market volatilities on First Industrial and Elme Communities 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 First Industrial with a short position of Elme Communities. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Industrial and Elme Communities.

Diversification Opportunities for First Industrial and Elme Communities

0.82

Correlation Coefficient

First Industrial  Elme Communities

Very poor diversification

The 3 months correlation between First and Elme is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding First Industrial Realty and Elme Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elme Communities and First Industrial 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 First Industrial Realty are associated (or correlated) with Elme Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elme Communities has no effect on the direction of First Industrial i.e., First Industrial and Elme Communities go up and down completely randomly.

Pair Corralation between First Industrial and Elme Communities

Allowing for the 90-day total investment horizon First Industrial is expected to generate 2.1 times less return on investment than Elme Communities. But when comparing it to its historical volatility, First Industrial Realty is 1.43 times less risky than Elme Communities. It trades about 0.1 of its potential returns per unit of risk. Elme Communities is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,470  in Elme Communities on December 27, 2024 and sell it today you would earn a total of  266.00  from holding Elme Communities or generate 18.1% return on investment over 90 days.

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

First Industrial Realty  vs.  Elme Communities

First Industrial Realty

Risk-Adjusted Performance

OK

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

Elme Communities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elme Communities are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Elme Communities exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Industrial and Elme Communities

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

The idea behind First Industrial Realty and Elme Communities 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.