Correlation Between Tri Pointe and National Storage

Can any of the company-specific risk be diversified away by investing in both Tri Pointe and National Storage 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 Tri Pointe and National Storage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tri Pointe Homes and National Storage Affiliates, you can compare the effects of market volatilities on Tri Pointe and National Storage 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 Tri Pointe with a short position of National Storage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tri Pointe and National Storage.

Diversification Opportunities for Tri Pointe and National Storage

0.68

Correlation Coefficient

Tri Pointe  National Storage

Poor diversification

The 3 months correlation between Tri and National is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Tri Pointe Homes and National Storage Affiliates in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Storage Aff and Tri Pointe 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 Tri Pointe Homes are associated (or correlated) with National Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Storage Aff has no effect on the direction of Tri Pointe i.e., Tri Pointe and National Storage go up and down completely randomly.

Pair Corralation between Tri Pointe and National Storage

Assuming the 90 days horizon Tri Pointe Homes is expected to generate 1.22 times more return on investment than National Storage. However, Tri Pointe is 1.22 times more volatile than National Storage Affiliates. It trades about 0.08 of its potential returns per unit of risk. National Storage Affiliates is currently generating about 0.04 per unit of risk. If you would invest  1,730  in Tri Pointe Homes on September 20, 2024 and sell it today you would earn a total of  1,870  from holding Tri Pointe Homes or generate 108.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Tri Pointe Homes  vs.  National Storage Affiliates

Tri Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tri Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

National Storage Aff

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Storage Affiliates has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Tri Pointe and National Storage

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

The idea behind Tri Pointe Homes and National Storage Affiliates 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.