Correlation Between One Liberty and Nexpoint Residential

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

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

Diversification Opportunities for One Liberty and Nexpoint Residential

0.86

Correlation Coefficient

One Liberty  Nexpoint Residential

Very poor diversification

The 3 months correlation between One and Nexpoint is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding One Liberty Properties and Nexpoint Residential Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nexpoint Residential and One Liberty 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 One Liberty Properties are associated (or correlated) with Nexpoint Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nexpoint Residential has no effect on the direction of One Liberty i.e., One Liberty and Nexpoint Residential go up and down completely randomly.

Pair Corralation between One Liberty and Nexpoint Residential

Considering the 90-day investment horizon One Liberty is expected to generate 2.01 times less return on investment than Nexpoint Residential. But when comparing it to its historical volatility, One Liberty Properties is 1.21 times less risky than Nexpoint Residential. It trades about 0.3 of its potential returns per unit of risk. Nexpoint Residential Trust is currently generating about 0.51 of returns per unit of risk over similar time horizon. If you would invest  3,271  in Nexpoint Residential Trust on February 21, 2024 and sell it today you would earn a total of  399.00  from holding Nexpoint Residential Trust or generate 12.2% return on investment over 90 days.

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

One Liberty Properties  vs.  Nexpoint Residential Trust

One Liberty Properties

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in One Liberty Properties are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak essential indicators, One Liberty reported solid returns over the last few months and may actually be approaching a breakup point.

Nexpoint Residential

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Nexpoint Residential Trust are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Nexpoint Residential unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with One Liberty and Nexpoint Residential

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

The idea behind One Liberty Properties and Nexpoint Residential Trust 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.