Correlation Between Extra Space and Meta Platforms

Can any of the company-specific risk be diversified away by investing in both Extra Space and Meta Platforms 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 Extra Space and Meta Platforms into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Extra Space Storage and Meta Platforms, you can compare the effects of market volatilities on Extra Space and Meta Platforms 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 Extra Space with a short position of Meta Platforms. Check out your portfolio center. Please also check ongoing floating volatility patterns of Extra Space and Meta Platforms.

Diversification Opportunities for Extra Space and Meta Platforms

-0.01

Correlation Coefficient

Extra Space  Meta Platforms

Good diversification

The 3 months correlation between Extra and Meta is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Extra Space Storage and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms and Extra Space 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 Extra Space Storage are associated (or correlated) with Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Extra Space i.e., Extra Space and Meta Platforms go up and down completely randomly.

Pair Corralation between Extra Space and Meta Platforms

Assuming the 90 days trading horizon Extra Space is expected to generate 2.43 times less return on investment than Meta Platforms. In addition to that, Extra Space is 1.2 times more volatile than Meta Platforms. It trades about 0.08 of its total potential returns per unit of risk. Meta Platforms is currently generating about 0.25 per unit of volatility. If you would invest  10,008  in Meta Platforms on September 6, 2024 and sell it today you would earn a total of  3,272  from holding Meta Platforms or generate 32.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Extra Space Storage  vs.  Meta Platforms

Extra Space Storage

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Extra Space Storage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Extra Space may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Meta Platforms

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Meta Platforms sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Extra Space and Meta Platforms

The main advantage of trading using opposite Extra Space and Meta Platforms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extra Space position performs unexpectedly, Meta Platforms 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 Meta Platforms will offset losses from the drop in Meta Platforms' long position.

The idea behind Extra Space Storage and Meta Platforms 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 the Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.