Correlation Between W P and Essential Properties

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

Diversification Opportunities for W P and Essential Properties

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between W P and Essential is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding W P Carey and Essential Properties Realty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essential Properties and W P 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 W P Carey are associated (or correlated) with Essential Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essential Properties has no effect on the direction of W P i.e., W P and Essential Properties go up and down completely randomly.

Pair Corralation between W P and Essential Properties

Considering the 90-day investment horizon W P is expected to generate 1.28 times less return on investment than Essential Properties. But when comparing it to its historical volatility, W P Carey is 1.15 times less risky than Essential Properties. It trades about 0.29 of its potential returns per unit of risk. Essential Properties Realty is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  2,111  in Essential Properties Realty on September 3, 2022 and sell it today you would earn a total of  244.00  from holding Essential Properties Realty or generate 11.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

W P Carey  vs.  Essential Properties Realty

 Performance (%) 
       Timeline  
W P Carey 
W P Performance
0 of 100
Over the last 90 days W P Carey has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, W P is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

W P Price Channel

Essential Properties 
Essential Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Essential Properties Realty are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Essential Properties may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Essential Price Channel

W P and Essential Properties Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with W P and Essential Properties

The main advantage of trading using opposite W P and Essential Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if W P position performs unexpectedly, Essential Properties 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 Essential Properties will offset losses from the drop in Essential Properties' long position.
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The idea behind W P Carey and Essential Properties Realty 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.

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