Correlation Between Agree Realty and Equity Residential

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

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

Diversification Opportunities for Agree Realty and Equity Residential

-0.57

Correlation Coefficient

Agree Realty  Equity Residential

Excellent diversification

The 3 months correlation between Agree and Equity is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Agree Realty and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential and Agree Realty 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 Agree Realty 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 Agree Realty i.e., Agree Realty and Equity Residential go up and down completely randomly.

Pair Corralation between Agree Realty and Equity Residential

Assuming the 90 days trading horizon Agree Realty is expected to under-perform the Equity Residential. But the preferred stock apears to be less risky and, when comparing its historical volatility, Agree Realty is 1.68 times less risky than Equity Residential. The preferred stock trades about -0.29 of its potential returns per unit of risk. The Equity Residential is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  6,145  in Equity Residential on January 31, 2024 and sell it today you would earn a total of  385.00  from holding Equity Residential or generate 6.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Agree Realty  vs.  Equity Residential

Agree Realty

Risk-Adjusted Performance

0 of 100

Very Weak

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

Equity Residential

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Residential are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Equity Residential may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Agree Realty and Equity Residential

The main advantage of trading using opposite Agree Realty and Equity Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Agree Realty 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 Agree Realty 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.

Check out your portfolio center.

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.