Correlation Between Power REIT and Equity Residential

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

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

Diversification Opportunities for Power REIT and Equity Residential

-0.38

Correlation Coefficient

Power REIT  Equity Residential

Very good diversification

The 3 months correlation between Power and Equity is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Power REIT and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential and Power REIT 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 Power REIT 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 Power REIT i.e., Power REIT and Equity Residential go up and down completely randomly.

Pair Corralation between Power REIT and Equity Residential

Allowing for the 90-day total investment horizon Power REIT is expected to under-perform the Equity Residential. In addition to that, Power REIT is 3.15 times more volatile than Equity Residential. It trades about -0.16 of its total potential returns per unit of risk. Equity Residential is currently generating about -0.01 per unit of volatility. If you would invest  7,363  in Equity Residential on August 14, 2024 and sell it today you would lose (58.00) from holding Equity Residential or give up 0.79% of portfolio value over 90 days.

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

Power REIT  vs.  Equity Residential

Power REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Power REIT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Power REIT may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Equity Residential

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Residential are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Equity Residential is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Power REIT and Equity Residential

The main advantage of trading using opposite Power REIT and Equity Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power REIT 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 Power REIT 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 Anywhere module to track or share privately all of your investments from the convenience of any device.