Correlation Between Independence Realty and Small Cap

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

By analyzing existing cross correlation between Independence Realty Trust and Small Cap Premium, you can compare the effects of market volatilities on Independence Realty and Small Cap 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 Independence Realty with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Independence Realty and Small Cap.

Diversification Opportunities for Independence Realty and Small Cap

0.64

Correlation Coefficient

Independence Realty  Small Cap

Poor diversification

The 3 months correlation between Independence and Small is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Independence Realty Trust and Small Cap Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Premium and Independence Realty 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 Independence Realty Trust are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Premium has no effect on the direction of Independence Realty i.e., Independence Realty and Small Cap go up and down completely randomly.

Pair Corralation between Independence Realty and Small Cap

Considering the 90-day investment horizon Independence Realty Trust is expected to generate 3.68 times more return on investment than Small Cap. However, Independence Realty is 3.68 times more volatile than Small Cap Premium. It trades about 0.09 of its potential returns per unit of risk. Small Cap Premium is currently generating about 0.08 per unit of risk. If you would invest  1,949  in Independence Realty Trust on December 29, 2024 and sell it today you would earn a total of  137.00  from holding Independence Realty Trust or generate 7.03% return on investment over 90 days.

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

Independence Realty Trust  vs.  Small Cap Premium

Independence Realty Trust

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Independence Realty Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Independence Realty may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Small Cap Premium

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Independence Realty and Small Cap

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

The idea behind Independence Realty Trust and Small Cap Premium 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.