Correlation Between Equity Residential and Arbor Realty

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

Diversification Opportunities for Equity Residential and Arbor Realty

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Equity and Arbor is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Equity Residential and Arbor Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbor Realty Trust and Equity Residential 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 Equity Residential are associated (or correlated) with Arbor Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbor Realty Trust has no effect on the direction of Equity Residential i.e., Equity Residential and Arbor Realty go up and down completely randomly.

Pair Corralation between Equity Residential and Arbor Realty

Considering the 90-day investment horizon Equity Residential is expected to generate 0.68 times more return on investment than Arbor Realty. However, Equity Residential is 1.46 times less risky than Arbor Realty. It trades about -0.39 of its potential returns per unit of risk. Arbor Realty Trust is currently generating about -0.5 per unit of risk. If you would invest  7,472  in Equity Residential on June 30, 2022 and sell it today you would lose (906.00)  from holding Equity Residential or give up 12.13% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy95.45%
ValuesDaily Returns

Equity Residential  vs.  Arbor Realty Trust

 Performance (%) 
       Timeline  
Equity Residential 
Equity Performance
0 of 100
Over the last 90 days Equity Residential has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Equity Price Channel

Arbor Realty Trust 
Arbor Performance
0 of 100
Over the last 90 days Arbor Realty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's fundamental drivers remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Arbor Price Channel

Equity Residential and Arbor Realty Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Equity Residential and Arbor Realty

The main advantage of trading using opposite Equity Residential and Arbor Realty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Residential position performs unexpectedly, Arbor Realty 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 Arbor Realty will offset losses from the drop in Arbor Realty's long position.
Equity Residential vs. Clearwater Paper Corp
The idea behind Equity Residential and Arbor Realty 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.
Arbor Realty vs. Clearwater Paper Corp
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 Probability Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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