Correlation Between Nexpoint Residential and Independence Realty

Can any of the company-specific risk be diversified away by investing in both Nexpoint Residential and Independence Realty 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 Independence Realty 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 Independence Realty Trust, you can compare the effects of market volatilities on Nexpoint Residential and Independence Realty 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 Independence Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nexpoint Residential and Independence Realty.

Diversification Opportunities for Nexpoint Residential and Independence Realty

0.84

Correlation Coefficient

Nexpoint Residential  Independence Realty

Very poor diversification

The 3 months correlation between Nexpoint and Independence is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Nexpoint Residential Trust and Independence Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independence Realty Trust 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 Independence Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independence Realty Trust has no effect on the direction of Nexpoint Residential i.e., Nexpoint Residential and Independence Realty go up and down completely randomly.

Pair Corralation between Nexpoint Residential and Independence Realty

Given the investment horizon of 90 days Nexpoint Residential is expected to generate 9.83 times less return on investment than Independence Realty. In addition to that, Nexpoint Residential is 1.13 times more volatile than Independence Realty Trust. It trades about 0.01 of its total potential returns per unit of risk. Independence Realty Trust is currently generating about 0.08 per unit of volatility. If you would invest  2,052  in Independence Realty Trust on September 3, 2024 and sell it today you would earn a total of  132.00  from holding Independence Realty Trust or generate 6.43% return on investment over 90 days.

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

Nexpoint Residential Trust  vs.  Independence Realty Trust

Nexpoint Residential

Risk-Adjusted Performance

0 of 100

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Independence Realty Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Independence Realty Trust are ranked lower than 6 (%) 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 January 2025.

Pair Trading with Nexpoint Residential and Independence Realty

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

The idea behind Nexpoint Residential Trust and Independence Realty 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .