Correlation Between Power REIT and Essex Property

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

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

Diversification Opportunities for Power REIT and Essex Property

-0.68

Correlation Coefficient

Power REIT  Essex Property

Excellent diversification

The 3 months correlation between Power and Essex is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Power REIT 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 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 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 Power REIT i.e., Power REIT and Essex Property go up and down completely randomly.

Pair Corralation between Power REIT and Essex Property

Allowing for the 90-day total investment horizon Power REIT is expected to under-perform the Essex Property. In addition to that, Power REIT is 2.56 times more volatile than Essex Property Trust. It trades about -0.12 of its total potential returns per unit of risk. Essex Property Trust is currently generating about 0.01 per unit of volatility. If you would invest  27,050  in Essex Property Trust on January 4, 2025 and sell it today you would earn a total of  53.00  from holding Essex Property Trust or generate 0.2% return on investment over 90 days.

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

Power REIT  vs.  Essex Property Trust

Power REIT

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in May 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Essex Property Trust

Risk-Adjusted Performance

OK

Over the last 90 days Essex Property Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Essex Property is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Power REIT and Essex Property

The main advantage of trading using opposite Power REIT and Essex Property positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Power REIT 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 Power REIT 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.