Correlation Between First Industrial and Equity Residential

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

Diversification Opportunities for First Industrial and Equity Residential

0.8

Correlation Coefficient

First Industrial  Equity Residential

Very poor diversification

The 3 months correlation between First and Equity is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding First Industrial Realty and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential 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 Equity Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Residential has no effect on the direction of First Industrial i.e., First Industrial and Equity Residential go up and down completely randomly.

Pair Corralation between First Industrial and Equity Residential

Allowing for the 90-day total investment horizon First Industrial Realty is expected to generate 0.82 times more return on investment than Equity Residential. However, First Industrial Realty is 1.22 times less risky than Equity Residential. It trades about 0.06 of its potential returns per unit of risk. Equity Residential is currently generating about -0.05 per unit of risk. If you would invest  5,015  in First Industrial Realty on October 23, 2024 and sell it today you would earn a total of  63.00  from holding First Industrial Realty or generate 1.26% 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.  Equity Residential

First Industrial Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Industrial Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Equity Residential

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equity Residential has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with First Industrial and Equity Residential

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

The idea behind First Industrial Realty and Equity Residential 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.