Correlation Between Elme Communities and Nexpoint Residential

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

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

Diversification Opportunities for Elme Communities and Nexpoint Residential

0.68

Correlation Coefficient

Elme Communities  Nexpoint Residential

Poor diversification

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

Pair Corralation between Elme Communities and Nexpoint Residential

Given the investment horizon of 90 days Elme Communities is expected to generate 2.14 times less return on investment than Nexpoint Residential. But when comparing it to its historical volatility, Elme Communities is 1.16 times less risky than Nexpoint Residential. It trades about 0.09 of its potential returns per unit of risk. Nexpoint Residential Trust is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,320  in Nexpoint Residential Trust on August 15, 2024 and sell it today you would earn a total of  267.00  from holding Nexpoint Residential Trust or generate 6.18% return on investment over 90 days.

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

Elme Communities  vs.  Nexpoint Residential Trust

Elme Communities

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Elme Communities are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Elme Communities is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nexpoint Residential

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nexpoint Residential Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Nexpoint Residential is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Elme Communities and Nexpoint Residential

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

The idea behind Elme Communities and Nexpoint Residential 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.