Correlation Between Nexpoint Residential and Mid America

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

Diversification Opportunities for Nexpoint Residential and Mid America

-0.32

Correlation Coefficient

Nexpoint Residential  Mid America

Very good diversification

The 3 months correlation between Nexpoint and Mid is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Nexpoint Residential Trust and Mid America Apartment Communit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid America Apartment 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 Mid America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid America Apartment has no effect on the direction of Nexpoint Residential i.e., Nexpoint Residential and Mid America go up and down completely randomly.

Pair Corralation between Nexpoint Residential and Mid America

Given the investment horizon of 90 days Nexpoint Residential Trust is expected to under-perform the Mid America. In addition to that, Nexpoint Residential is 1.44 times more volatile than Mid America Apartment Communities. It trades about -0.07 of its total potential returns per unit of risk. Mid America Apartment Communities is currently generating about -0.03 per unit of volatility. If you would invest  5,741  in Mid America Apartment Communities on December 1, 2024 and sell it today you would lose (138.00) from holding Mid America Apartment Communities or give up 2.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Nexpoint Residential Trust  vs.  Mid America Apartment Communit

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Mid America Apartment

Risk-Adjusted Performance

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 fairly strong basic indicators, Mid America is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Nexpoint Residential and Mid America

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

The idea behind Nexpoint Residential Trust and Mid America Apartment 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.