Correlation Between Boston Properties and Smart REIT

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

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

Diversification Opportunities for Boston Properties and Smart REIT

0.76

Correlation Coefficient

Boston Properties  Smart REIT

Poor diversification

The 3 months correlation between Boston and Smart is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Boston Properties and Smart REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smart REIT and Boston 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 Boston Properties are associated (or correlated) with Smart REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smart REIT has no effect on the direction of Boston Properties i.e., Boston Properties and Smart REIT go up and down completely randomly.

Pair Corralation between Boston Properties and Smart REIT

Considering the 90-day investment horizon Boston Properties is expected to under-perform the Smart REIT. In addition to that, Boston Properties is 2.1 times more volatile than Smart REIT. It trades about -0.33 of its total potential returns per unit of risk. Smart REIT is currently generating about -0.24 per unit of volatility. If you would invest  1,827  in Smart REIT on October 10, 2024 and sell it today you would lose (94.00) from holding Smart REIT or give up 5.15% of portfolio value over 90 days.

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

Boston Properties  vs.  Smart REIT

Boston Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Boston Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Even with fragile performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Smart REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smart REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Smart REIT is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Boston Properties and Smart REIT

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

The idea behind Boston Properties and Smart 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.