Correlation Between Essential Properties and Douglas Emmett

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

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

Diversification Opportunities for Essential Properties and Douglas Emmett

0.75

Correlation Coefficient

Essential Properties  Douglas Emmett

Poor diversification

The 3 months correlation between Essential and Douglas is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Essential Properties Realty and Douglas Emmett in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Douglas Emmett and Essential Properties 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 Essential Properties Realty are associated (or correlated) with Douglas Emmett. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Douglas Emmett has no effect on the direction of Essential Properties i.e., Essential Properties and Douglas Emmett go up and down completely randomly.

Pair Corralation between Essential Properties and Douglas Emmett

Given the investment horizon of 90 days Essential Properties Realty is expected to generate 0.51 times more return on investment than Douglas Emmett. However, Essential Properties Realty is 1.95 times less risky than Douglas Emmett. It trades about 0.04 of its potential returns per unit of risk. Douglas Emmett is currently generating about 0.02 per unit of risk. If you would invest  2,635  in Essential Properties Realty on March 2, 2024 and sell it today you would earn a total of  23.00  from holding Essential Properties Realty or generate 0.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Essential Properties Realty  vs.  Douglas Emmett

Essential Properties

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Essential Properties Realty are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Essential Properties may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Douglas Emmett

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Douglas Emmett are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Douglas Emmett is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Essential Properties and Douglas Emmett

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

The idea behind Essential Properties Realty and Douglas Emmett 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.