Correlation Between Essential Properties and Microsoft Corp

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Can any of the company-specific risk be diversified away by investing in both Essential Properties and Microsoft Corp 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 Essential Properties and Microsoft Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Essential Properties Realty and Microsoft Corp, you can compare the effects of market volatilities on Essential Properties and Microsoft Corp 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 Essential Properties with a short position of Microsoft Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essential Properties and Microsoft Corp.

Diversification Opportunities for Essential Properties and Microsoft Corp

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Essential and Microsoft is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Essential Properties Realty and Microsoft Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft Corp and Essential Properties 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 Essential Properties Realty are associated (or correlated) with Microsoft Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft Corp has no effect on the direction of Essential Properties i.e., Essential Properties and Microsoft Corp go up and down completely randomly.

Pair Corralation between Essential Properties and Microsoft Corp

Given the investment horizon of 90 days Essential Properties Realty is expected to under-perform the Microsoft Corp. In addition to that, Essential Properties is 1.09 times more volatile than Microsoft Corp. It trades about -0.23 of its total potential returns per unit of risk. Microsoft Corp is currently generating about -0.15 per unit of volatility. If you would invest  28,032  in Microsoft Corp on July 8, 2022 and sell it today you would lose (3,112)  from holding Microsoft Corp or give up 11.1% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Essential Properties Realty  vs.  Microsoft Corp

 Performance (%) 
       Timeline  
Essential Properties 
Essential Performance
0 of 100
Over the last 90 days Essential Properties Realty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Essential Price Channel

Microsoft Corp 
Microsoft Performance
0 of 100
Over the last 90 days Microsoft Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Microsoft Price Channel

Essential Properties and Microsoft Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Essential Properties and Microsoft Corp

The main advantage of trading using opposite Essential Properties and Microsoft Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essential Properties position performs unexpectedly, Microsoft Corp 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 Microsoft Corp will offset losses from the drop in Microsoft Corp's long position.
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The idea behind Essential Properties Realty and Microsoft Corp 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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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 Transaction History module to view history of all your transactions and understand their impact on performance.

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