Correlation Between Equity Residential and Equity Lifestyle

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

Diversification Opportunities for Equity Residential and Equity Lifestyle

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Equity and Equity is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Equity Residential and Equity Lifestyle Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Lifestyle Pro 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 Equity Lifestyle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Lifestyle Pro has no effect on the direction of Equity Residential i.e., Equity Residential and Equity Lifestyle go up and down completely randomly.

Pair Corralation between Equity Residential and Equity Lifestyle

Considering the 90-day investment horizon Equity Residential is expected to generate 1.15 times more return on investment than Equity Lifestyle. However, Equity Residential is 1.15 times more volatile than Equity Lifestyle Properties. It trades about 0.06 of its potential returns per unit of risk. Equity Lifestyle Properties is currently generating about 0.03 per unit of risk. If you would invest  5,328  in Equity Residential on May 20, 2022 and sell it today you would earn a total of  2,729  from holding Equity Residential or generate 51.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Equity Residential  vs.  Equity Lifestyle Properties

 Performance (%) 
       Timeline  
Equity Residential 
Equity Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Equity Residential are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Equity Residential may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Equity Price Channel

Equity Lifestyle Pro 
Equity Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Equity Lifestyle Properties are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak essential indicators, Equity Lifestyle may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Equity Price Channel

Equity Residential and Equity Lifestyle Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Equity Residential and Equity Lifestyle

The main advantage of trading using opposite Equity Residential and Equity Lifestyle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Residential position performs unexpectedly, Equity Lifestyle 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 Lifestyle will offset losses from the drop in Equity Lifestyle's long position.
The idea behind Equity Residential and Equity Lifestyle Properties 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 Stock Screener module to find equities using custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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