Correlation Between Weyerhaeuser and Elme Communities

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

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

Diversification Opportunities for Weyerhaeuser and Elme Communities

0.74

Correlation Coefficient

Weyerhaeuser  Elme Communities

Poor diversification

The 3 months correlation between Weyerhaeuser and Elme is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Weyerhaeuser and Elme Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elme Communities and Weyerhaeuser 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 Weyerhaeuser are associated (or correlated) with Elme Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elme Communities has no effect on the direction of Weyerhaeuser i.e., Weyerhaeuser and Elme Communities go up and down completely randomly.

Pair Corralation between Weyerhaeuser and Elme Communities

Allowing for the 90-day total investment horizon Weyerhaeuser is expected to under-perform the Elme Communities. In addition to that, Weyerhaeuser is 1.03 times more volatile than Elme Communities. It trades about -0.15 of its total potential returns per unit of risk. Elme Communities is currently generating about -0.13 per unit of volatility. If you would invest  1,792  in Elme Communities on September 19, 2024 and sell it today you would lose (192.00) from holding Elme Communities or give up 10.71% of portfolio value over 90 days.

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

Weyerhaeuser  vs.  Elme Communities

Weyerhaeuser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Weyerhaeuser has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Elme Communities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elme Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Weyerhaeuser and Elme Communities

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

The idea behind Weyerhaeuser and Elme Communities 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.