Correlation Between Brandywine Realty and City Office

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

By analyzing existing cross correlation between Brandywine Realty Trust and City Office REIT, you can compare the effects of market volatilities on Brandywine Realty and City 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 Brandywine Realty with a short position of City Office. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brandywine Realty and City Office.

Diversification Opportunities for Brandywine Realty and City Office

0.31

Correlation Coefficient

Brandywine Realty  City Office

Weak diversification

The 3 months correlation between Brandywine and City is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Brandywine Realty Trust and City Office REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Office REIT and Brandywine Realty 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 Brandywine Realty Trust are associated (or correlated) with City Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Office REIT has no effect on the direction of Brandywine Realty i.e., Brandywine Realty and City Office go up and down completely randomly.

Pair Corralation between Brandywine Realty and City Office

Considering the 90-day investment horizon Brandywine Realty is expected to generate 1.33 times less return on investment than City Office. In addition to that, Brandywine Realty is 1.17 times more volatile than City Office REIT. It trades about 0.21 of its total potential returns per unit of risk. City Office REIT is currently generating about 0.33 per unit of volatility. If you would invest  1,808  in City Office REIT on September 15, 2024 and sell it today you would earn a total of  190.00  from holding City Office REIT or generate 10.51% return on investment over 90 days.

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

Brandywine Realty Trust  vs.  City Office REIT

Brandywine Realty Trust

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Brandywine Realty Trust are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Brandywine Realty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

City Office REIT

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in City Office REIT are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, City Office is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Brandywine Realty and City Office

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

The idea behind Brandywine Realty Trust and City Office REIT 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.