Correlation Between Steel Partners and Equity Residential

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

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

Diversification Opportunities for Steel Partners and Equity Residential

-0.44

Correlation Coefficient

Steel Partners  Equity Residential

Very good diversification

The 3 months correlation between Steel and Equity is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Steel Partners Holdings and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential and Steel Partners 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 Steel Partners Holdings are associated (or correlated) with Equity Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Residential has no effect on the direction of Steel Partners i.e., Steel Partners and Equity Residential go up and down completely randomly.

Pair Corralation between Steel Partners and Equity Residential

Assuming the 90 days trading horizon Steel Partners is expected to generate 1.18 times less return on investment than Equity Residential. But when comparing it to its historical volatility, Steel Partners Holdings is 3.18 times less risky than Equity Residential. It trades about 0.09 of its potential returns per unit of risk. Equity Residential is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,891  in Equity Residential on October 23, 2024 and sell it today you would earn a total of  1,129  from holding Equity Residential or generate 19.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Steel Partners Holdings  vs.  Equity Residential

Steel Partners Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Partners Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Steel Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Equity Residential

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equity Residential has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Steel Partners and Equity Residential

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

The idea behind Steel Partners Holdings and Equity Residential 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 Stocks Directory module to find actively traded stocks across global markets.