Correlation Between Equity Residential and INVITATION HOMES

Can any of the company-specific risk be diversified away by investing in both Equity Residential and INVITATION HOMES 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 INVITATION HOMES into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Equity Residential and INVITATION HOMES DL, you can compare the effects of market volatilities on Equity Residential and INVITATION HOMES 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 INVITATION HOMES. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Residential and INVITATION HOMES.

Diversification Opportunities for Equity Residential and INVITATION HOMES

0.79

Correlation Coefficient

Equity Residential  INVITATION HOMES

Poor diversification

The 3 months correlation between Equity and INVITATION is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Equity Residential and INVITATION HOMES DL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INVITATION HOMES 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 INVITATION HOMES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INVITATION HOMES has no effect on the direction of Equity Residential i.e., Equity Residential and INVITATION HOMES go up and down completely randomly.

Pair Corralation between Equity Residential and INVITATION HOMES

Assuming the 90 days horizon Equity Residential is expected to generate 0.88 times more return on investment than INVITATION HOMES. However, Equity Residential is 1.13 times less risky than INVITATION HOMES. It trades about 0.01 of its potential returns per unit of risk. INVITATION HOMES DL is currently generating about -0.04 per unit of risk. If you would invest  6,833  in Equity Residential on September 23, 2024 and sell it today you would earn a total of  17.00  from holding Equity Residential or generate 0.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Equity Residential  vs.  INVITATION HOMES DL

Equity Residential

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equity Residential has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Equity Residential is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

INVITATION HOMES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INVITATION HOMES DL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, INVITATION HOMES is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Equity Residential and INVITATION HOMES

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

The idea behind Equity Residential and INVITATION HOMES DL 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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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.