Correlation Between European Residential and Madison Pacific

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

By analyzing existing cross correlation between European Residential Real and Madison Pacific Properties, you can compare the effects of market volatilities on European Residential and Madison Pacific 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 European Residential with a short position of Madison Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and Madison Pacific.

Diversification Opportunities for European Residential and Madison Pacific

0.38

Correlation Coefficient

European Residential  Madison Pacific

Weak diversification

The 3 months correlation between European and Madison is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and Madison Pacific Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Pacific Prop and European 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 European Residential Real are associated (or correlated) with Madison Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Pacific Prop has no effect on the direction of European Residential i.e., European Residential and Madison Pacific go up and down completely randomly.

Pair Corralation between European Residential and Madison Pacific

Assuming the 90 days trading horizon European Residential is expected to generate 1.46 times less return on investment than Madison Pacific. But when comparing it to its historical volatility, European Residential Real is 1.45 times less risky than Madison Pacific. It trades about 0.11 of its potential returns per unit of risk. Madison Pacific Properties is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  429.00  in Madison Pacific Properties on September 22, 2024 and sell it today you would earn a total of  102.00  from holding Madison Pacific Properties or generate 23.78% return on investment over 90 days.

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

European Residential Real  vs.  Madison Pacific Properties

European Residential Real

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

Madison Pacific Prop

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Pacific Properties are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Madison Pacific displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with European Residential and Madison Pacific

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

The idea behind European Residential Real and Madison Pacific 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 the Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.