Correlation Between Elme Communities and Alexandria Real

Can any of the company-specific risk be diversified away by investing in both Elme Communities and Alexandria Real 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 Elme Communities and Alexandria Real into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Elme Communities and Alexandria Real Estate, you can compare the effects of market volatilities on Elme Communities and Alexandria Real 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 Elme Communities with a short position of Alexandria Real. Check out your portfolio center. Please also check ongoing floating volatility patterns of Elme Communities and Alexandria Real.

Diversification Opportunities for Elme Communities and Alexandria Real

0.81

Correlation Coefficient

Elme Communities  Alexandria Real

Very poor diversification

The 3 months correlation between Elme and Alexandria is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Elme Communities and Alexandria Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alexandria Real Estate and Elme Communities 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 Elme Communities are associated (or correlated) with Alexandria Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alexandria Real Estate has no effect on the direction of Elme Communities i.e., Elme Communities and Alexandria Real go up and down completely randomly.

Pair Corralation between Elme Communities and Alexandria Real

Given the investment horizon of 90 days Elme Communities is expected to generate 0.87 times more return on investment than Alexandria Real. However, Elme Communities is 1.15 times less risky than Alexandria Real. It trades about -0.29 of its potential returns per unit of risk. Alexandria Real Estate is currently generating about -0.38 per unit of risk. If you would invest  1,621  in Elme Communities on September 24, 2024 and sell it today you would lose (129.00) from holding Elme Communities or give up 7.96% of portfolio value over 90 days.

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

Elme Communities  vs.  Alexandria Real Estate

Elme Communities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elme Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Alexandria Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alexandria Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Elme Communities and Alexandria Real

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

The idea behind Elme Communities and Alexandria Real Estate 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.