Correlation Between Smart REIT and Plaza Retail

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

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

Diversification Opportunities for Smart REIT and Plaza Retail

0.82

Correlation Coefficient

Smart REIT  Plaza Retail

Very poor diversification

The 3 months correlation between Smart and Plaza is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Smart REIT and Plaza Retail REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plaza Retail REIT and Smart REIT 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 Smart REIT are associated (or correlated) with Plaza Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plaza Retail REIT has no effect on the direction of Smart REIT i.e., Smart REIT and Plaza Retail go up and down completely randomly.

Pair Corralation between Smart REIT and Plaza Retail

Assuming the 90 days horizon Smart REIT is expected to generate 1.23 times more return on investment than Plaza Retail. However, Smart REIT is 1.23 times more volatile than Plaza Retail REIT. It trades about 0.01 of its potential returns per unit of risk. Plaza Retail REIT is currently generating about -0.01 per unit of risk. If you would invest  1,705  in Smart REIT on October 7, 2024 and sell it today you would earn a total of  11.00  from holding Smart REIT or generate 0.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	80.27%
Values	Daily Returns

Smart REIT  vs.  Plaza Retail REIT

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Plaza Retail REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Plaza Retail REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Smart REIT and Plaza Retail

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

The idea behind Smart REIT and Plaza Retail 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.