Correlation Between Easterly Government and Boston Properties

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

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

Diversification Opportunities for Easterly Government and Boston Properties

0.58

Correlation Coefficient

Easterly Government  Boston Properties

Very weak diversification

The 3 months correlation between Easterly and Boston is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Easterly Government Properties and Boston Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Properties and Easterly Government 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 Easterly Government Properties are associated (or correlated) with Boston Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Properties has no effect on the direction of Easterly Government i.e., Easterly Government and Boston Properties go up and down completely randomly.

Pair Corralation between Easterly Government and Boston Properties

Assuming the 90 days horizon Easterly Government Properties is expected to under-perform the Boston Properties. But the stock apears to be less risky and, when comparing its historical volatility, Easterly Government Properties is 1.38 times less risky than Boston Properties. The stock trades about -0.31 of its potential returns per unit of risk. The Boston Properties is currently generating about -0.2 of returns per unit of risk over similar time horizon. If you would invest  7,920  in Boston Properties on September 27, 2024 and sell it today you would lose (652.00) from holding Boston Properties or give up 8.23% of portfolio value over 90 days.

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

Easterly Government Properties  vs.  Boston Properties

Easterly Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Easterly Government Properties 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.

Boston Properties

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Properties are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Boston Properties is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Easterly Government and Boston Properties

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

The idea behind Easterly Government Properties and Boston 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.