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

0.95

Correlation Coefficient

Mid America  Essex Property

Almost no diversification

The 3 months correlation between Mid and Essex is 0.95. 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

Considering the 90-day investment horizon Mid America is expected to generate 1.03 times less return on investment than Essex Property. But when comparing it to its historical volatility, Mid America Apartment Communities is 1.1 times less risky than Essex Property. It trades about 0.09 of its potential returns per unit of risk. Essex Property Trust is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  28,524  in Essex Property Trust on December 26, 2024 and sell it today you would earn a total of  1,777  from holding Essex Property Trust or generate 6.23% return on investment over 90 days.

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

Mid America Apartment Communit  vs.  Essex Property Trust

Mid America Apartment

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mid America Apartment Communities are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mid America may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Essex Property Trust

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Essex Property Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Essex Property may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.