Correlation Between City Office and Highwoods Properties

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

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

Diversification Opportunities for City Office and Highwoods Properties

-0.31

Correlation Coefficient

City Office  Highwoods Properties

Very good diversification

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

Pair Corralation between City Office and Highwoods Properties

Assuming the 90 days trading horizon City Office is expected to generate 3.11 times less return on investment than Highwoods Properties. But when comparing it to its historical volatility, City Office REIT is 1.21 times less risky than Highwoods Properties. It trades about 0.04 of its potential returns per unit of risk. Highwoods Properties is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,139  in Highwoods Properties on September 15, 2024 and sell it today you would earn a total of  968.00  from holding Highwoods Properties or generate 45.25% return on investment over 90 days.

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

City Office REIT  vs.  Highwoods Properties

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.

Highwoods Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Highwoods Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, Highwoods Properties is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with City Office and Highwoods Properties

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

The idea behind City Office REIT and Highwoods 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.