Correlation Between Global Net and Essential Properties

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

By analyzing existing cross correlation between Global Net Lease and Essential Properties Realty, you can compare the effects of market volatilities on Global Net and Essential Properties 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 Global Net with a short position of Essential Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Net and Essential Properties.

Diversification Opportunities for Global Net and Essential Properties

0.2

Correlation Coefficient

Global Net  Essential Properties

Modest diversification

The 3 months correlation between Global and Essential is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Global Net Lease and Essential Properties Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Properties and Global Net 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 Global Net Lease are associated (or correlated) with Essential Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Properties has no effect on the direction of Global Net i.e., Global Net and Essential Properties go up and down completely randomly.

Pair Corralation between Global Net and Essential Properties

Assuming the 90 days trading horizon Global Net is expected to generate 1.85 times less return on investment than Essential Properties. But when comparing it to its historical volatility, Global Net Lease is 1.26 times less risky than Essential Properties. It trades about 0.05 of its potential returns per unit of risk. Essential Properties Realty is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,092  in Essential Properties Realty on December 30, 2024 and sell it today you would earn a total of  168.00  from holding Essential Properties Realty or generate 5.43% return on investment over 90 days.

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

Global Net Lease  vs.  Essential Properties Realty

Global Net Lease

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Net Lease are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Global Net is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Essential Properties

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Essential Properties Realty are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Essential Properties is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Global Net and Essential Properties

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

The idea behind Global Net Lease and Essential Properties Realty 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.