Correlation Between Madison Pacific and European Residential

Can any of the company-specific risk be diversified away by investing in both Madison Pacific and European Residential 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 Madison Pacific and European Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Madison Pacific Properties and European Residential Real, you can compare the effects of market volatilities on Madison Pacific and European Residential 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 Madison Pacific with a short position of European Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Madison Pacific and European Residential.

Diversification Opportunities for Madison Pacific and European Residential

0.26

Correlation Coefficient

Madison Pacific  European Residential

Modest diversification

The 3 months correlation between Madison and European is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Madison Pacific Properties and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real and Madison Pacific 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 Madison Pacific Properties are associated (or correlated) with European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of Madison Pacific i.e., Madison Pacific and European Residential go up and down completely randomly.

Pair Corralation between Madison Pacific and European Residential

Assuming the 90 days trading horizon Madison Pacific Properties is expected to generate 0.62 times more return on investment than European Residential. However, Madison Pacific Properties is 1.62 times less risky than European Residential. It trades about 0.01 of its potential returns per unit of risk. European Residential Real is currently generating about -0.04 per unit of risk. If you would invest  505.00  in Madison Pacific Properties on October 8, 2024 and sell it today you would lose (5.00) from holding Madison Pacific Properties or give up 0.99% of portfolio value over 90 days.

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

Madison Pacific Properties  vs.  European Residential Real

Madison Pacific Prop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Madison Pacific Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Madison Pacific is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

European Residential Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Residential Real has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Madison Pacific and European Residential

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

The idea behind Madison Pacific Properties and European Residential Real 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.