Correlation Between Mid America and Essex Property

Can any of the company-specific risk be diversified away by investing in both Mid America and Essex Property 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 Mid America and Essex Property into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Mid America Apartment Communities and Essex Property Trust, you can compare the effects of market volatilities on Mid America and Essex Property 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 Mid America with a short position of Essex Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid America and Essex Property.

Diversification Opportunities for Mid America and Essex Property

0.01

Correlation Coefficient

Mid America  Essex Property

Significant diversification

The 3 months correlation between Mid and Essex is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Mid America Apartment Communit and Essex Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essex Property Trust and Mid America 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 Mid America Apartment Communities are associated (or correlated) with Essex Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essex Property Trust has no effect on the direction of Mid America i.e., Mid America and Essex Property go up and down completely randomly.

Pair Corralation between Mid America and Essex Property

Assuming the 90 days trading horizon Mid America Apartment Communities is expected to under-perform the Essex Property. But the stock apears to be less risky and, when comparing its historical volatility, Mid America Apartment Communities is 2.32 times less risky than Essex Property. The stock trades about -0.12 of its potential returns per unit of risk. The Essex Property Trust is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  17,223  in Essex Property Trust on September 16, 2024 and sell it today you would earn a total of  821.00  from holding Essex Property Trust or generate 4.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Mid America Apartment Communit  vs.  Essex Property Trust

Mid America Apartment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mid America Apartment Communities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Mid America is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Essex Property Trust

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Essex Property Trust are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Essex Property is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mid America and Essex Property

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

The idea behind Mid America Apartment Communities and Essex Property Trust 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.