Correlation Between Tri Pointe and Public Storage

Can any of the company-specific risk be diversified away by investing in both Tri Pointe and Public Storage 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 Tri Pointe and Public Storage into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Tri Pointe and Public Storage

0.81

Correlation Coefficient

Tri Pointe  Public Storage

Very poor diversification

The 3 months correlation between Tri and Public is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Tri Pointe Homes and Public Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Public Storage and Tri Pointe 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 Tri Pointe Homes are associated (or correlated) with Public Storage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Public Storage has no effect on the direction of Tri Pointe i.e., Tri Pointe and Public Storage go up and down completely randomly.

Pair Corralation between Tri Pointe and Public Storage

Assuming the 90 days horizon Tri Pointe Homes is expected to under-perform the Public Storage. In addition to that, Tri Pointe is 1.19 times more volatile than Public Storage. It trades about -0.4 of its total potential returns per unit of risk. Public Storage is currently generating about -0.45 per unit of volatility. If you would invest  31,797  in Public Storage on September 24, 2024 and sell it today you would lose (4,127) from holding Public Storage or give up 12.98% of portfolio value over 90 days.

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

Tri Pointe Homes  vs.  Public Storage

Tri Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tri Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Public Storage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Public Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Tri Pointe and Public Storage

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

The idea behind Tri Pointe Homes and Public Storage 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.