Correlation Between Vulcan Materials and Extra Space

Can any of the company-specific risk be diversified away by investing in both Vulcan Materials and Extra Space 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 Vulcan Materials and Extra Space into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vulcan Materials and Extra Space Storage, you can compare the effects of market volatilities on Vulcan Materials and Extra Space 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 Vulcan Materials with a short position of Extra Space. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vulcan Materials and Extra Space.

Diversification Opportunities for Vulcan Materials and Extra Space

0.63

Correlation Coefficient

Vulcan Materials  Extra Space

Poor diversification

The 3 months correlation between Vulcan and Extra is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage and Vulcan Materials 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 Vulcan Materials are associated (or correlated) with Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of Vulcan Materials i.e., Vulcan Materials and Extra Space go up and down completely randomly.

Pair Corralation between Vulcan Materials and Extra Space

Assuming the 90 days trading horizon Vulcan Materials is expected to under-perform the Extra Space. In addition to that, Vulcan Materials is 1.11 times more volatile than Extra Space Storage. It trades about -0.16 of its total potential returns per unit of risk. Extra Space Storage is currently generating about -0.06 per unit of volatility. If you would invest  22,540  in Extra Space Storage on December 23, 2024 and sell it today you would lose (1,540) from holding Extra Space Storage or give up 6.83% of portfolio value over 90 days.

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

Vulcan Materials  vs.  Extra Space Storage

Vulcan Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vulcan Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's primary indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Extra Space Storage

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vulcan Materials and Extra Space

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

The idea behind Vulcan Materials and Extra Space Storage 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.