Can any of the company-specific risk be diversified away by investing in both Ensign and Corporate Office 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 Ensign and Corporate Office into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Ensign Group and Corporate Office Properties, you can compare the effects of market volatilities on Ensign and Corporate Office 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 Ensign with a short position of Corporate Office. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ensign and Corporate Office.
Diversification Opportunities for Ensign and Corporate Office
The 3 months correlation between Ensign and Corporate is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding The Ensign Group and Corporate Office Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Corporate Office Pro and Ensign 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 The Ensign Group are associated (or correlated) with Corporate Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Corporate Office Pro has no effect on the direction of Ensign i.e., Ensign and Corporate Office go up and down completely randomly.
Pair Corralation between Ensign and Corporate Office
Assuming the 90 days horizon The Ensign Group is expected to under-perform the Corporate Office. But the stock apears to be less risky and, when comparing its historical volatility, The Ensign Group is 1.39 times less risky than Corporate Office. The stock trades about -0.05 of its potential returns per unit of risk. The Corporate Office Properties is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 2,320 in Corporate Office Properties on June 24, 2023 and sell it today you would earn a total of 0.00 from holding Corporate Office Properties or generate 0.0% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in The Ensign Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Ensign may actually be approaching a critical reversion point that can send shares even higher in October 2023.
Compared to the overall equity markets, risk-adjusted returns on investments in Corporate Office Properties are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Corporate Office may actually be approaching a critical reversion point that can send shares even higher in October 2023.
The main advantage of trading using opposite Ensign and Corporate Office positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ensign position performs unexpectedly, Corporate Office 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 Corporate Office will offset losses from the drop in Corporate Office's long position.
The idea behind The Ensign Group and Corporate Office Properties 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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