Correlation Between Firm Capital and Phillips Edison

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

By analyzing existing cross correlation between Firm Capital Property and Phillips Edison Co, you can compare the effects of market volatilities on Firm Capital and Phillips Edison 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 Firm Capital with a short position of Phillips Edison. Check out your portfolio center. Please also check ongoing floating volatility patterns of Firm Capital and Phillips Edison.

Diversification Opportunities for Firm Capital and Phillips Edison

-0.11

Correlation Coefficient

Firm Capital  Phillips Edison

Good diversification

The 3 months correlation between Firm and Phillips is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Firm Capital Property and Phillips Edison Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Phillips Edison and Firm Capital 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 Firm Capital Property are associated (or correlated) with Phillips Edison. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Phillips Edison has no effect on the direction of Firm Capital i.e., Firm Capital and Phillips Edison go up and down completely randomly.

Pair Corralation between Firm Capital and Phillips Edison

Assuming the 90 days horizon Firm Capital Property is expected to generate 1.54 times more return on investment than Phillips Edison. However, Firm Capital is 1.54 times more volatile than Phillips Edison Co. It trades about -0.12 of its potential returns per unit of risk. Phillips Edison Co is currently generating about -0.27 per unit of risk. If you would invest  404.00  in Firm Capital Property on October 8, 2024 and sell it today you would lose (19.00) from holding Firm Capital Property or give up 4.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Firm Capital Property  vs.  Phillips Edison Co

Firm Capital Property

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Firm Capital Property has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Firm Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Phillips Edison

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Phillips Edison Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Phillips Edison is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Firm Capital and Phillips Edison

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

The idea behind Firm Capital Property and Phillips Edison Co 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.