Correlation Between Nexpoint Residential and Elme Communities

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

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

Diversification Opportunities for Nexpoint Residential and Elme Communities

0.07

Correlation Coefficient

Nexpoint Residential  Elme Communities

Significant diversification

The 3 months correlation between Nexpoint and Elme is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Nexpoint Residential Trust and Elme Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elme Communities and Nexpoint Residential 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 Nexpoint Residential Trust are associated (or correlated) with Elme Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elme Communities has no effect on the direction of Nexpoint Residential i.e., Nexpoint Residential and Elme Communities go up and down completely randomly.

Pair Corralation between Nexpoint Residential and Elme Communities

Given the investment horizon of 90 days Nexpoint Residential Trust is expected to under-perform the Elme Communities. But the stock apears to be less risky and, when comparing its historical volatility, Nexpoint Residential Trust is 1.19 times less risky than Elme Communities. The stock trades about -0.04 of its potential returns per unit of risk. The Elme Communities is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,475  in Elme Communities on December 29, 2024 and sell it today you would earn a total of  252.00  from holding Elme Communities or generate 17.08% return on investment over 90 days.

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

Nexpoint Residential Trust  vs.  Elme Communities

Nexpoint Residential

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nexpoint Residential Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nexpoint Residential is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Elme Communities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Elme Communities are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Elme Communities exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nexpoint Residential and Elme Communities

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

The idea behind Nexpoint Residential Trust and Elme Communities 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.