Correlation Between Salesforce and Equity Residential

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

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

Diversification Opportunities for Salesforce and Equity Residential

0.24

Correlation Coefficient

Salesforce  Equity Residential

Modest diversification

The 3 months correlation between Salesforce and Equity is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential and Salesforce 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 Salesforce are associated (or correlated) with Equity Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Residential has no effect on the direction of Salesforce i.e., Salesforce and Equity Residential go up and down completely randomly.

Pair Corralation between Salesforce and Equity Residential

Considering the 90-day investment horizon Salesforce is expected to under-perform the Equity Residential. In addition to that, Salesforce is 1.41 times more volatile than Equity Residential. It trades about -0.21 of its total potential returns per unit of risk. Equity Residential is currently generating about 0.2 per unit of volatility. If you would invest  6,145  in Equity Residential on January 30, 2024 and sell it today you would earn a total of  369.00  from holding Equity Residential or generate 6.0% return on investment over 90 days.

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

Salesforce  vs.  Equity Residential

Salesforce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Salesforce has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Salesforce is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Equity Residential

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Residential are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Equity Residential may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Salesforce and Equity Residential

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

The idea behind Salesforce and Equity Residential 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.