Correlation Between Verizon Communications and Essex Property

Can any of the company-specific risk be diversified away by investing in both Verizon Communications and Essex Property 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 Verizon Communications and Essex Property into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Verizon Communications and Essex Property Trust, you can compare the effects of market volatilities on Verizon Communications and Essex Property 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 Verizon Communications with a short position of Essex Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of Verizon Communications and Essex Property.

Diversification Opportunities for Verizon Communications and Essex Property

0.7

Correlation Coefficient

Verizon Communications  Essex Property

Poor diversification

The 3 months correlation between Verizon and Essex is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Verizon Communications and Essex Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essex Property Trust and Verizon Communications 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 Verizon Communications are associated (or correlated) with Essex Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essex Property Trust has no effect on the direction of Verizon Communications i.e., Verizon Communications and Essex Property go up and down completely randomly.

Pair Corralation between Verizon Communications and Essex Property

Assuming the 90 days trading horizon Verizon Communications is expected to generate 0.88 times more return on investment than Essex Property. However, Verizon Communications is 1.14 times less risky than Essex Property. It trades about 0.09 of its potential returns per unit of risk. Essex Property Trust is currently generating about 0.08 per unit of risk. If you would invest  4,058  in Verizon Communications on September 18, 2024 and sell it today you would earn a total of  108.00  from holding Verizon Communications or generate 2.66% return on investment over 90 days.

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

Verizon Communications  vs.  Essex Property Trust

Verizon Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Verizon Communications are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Verizon Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Essex Property Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Essex Property Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Essex Property is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Verizon Communications and Essex Property

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

The idea behind Verizon Communications and Essex Property 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.