Correlation Between Essential Properties and Boston Properties

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

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

Diversification Opportunities for Essential Properties and Boston Properties

0.25

Correlation Coefficient

Essential Properties  Boston Properties

Modest diversification

The 3 months correlation between Essential and Boston is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Essential Properties Realty and Boston Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Properties and Essential 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 Essential Properties Realty 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 Essential Properties i.e., Essential Properties and Boston Properties go up and down completely randomly.

Pair Corralation between Essential Properties and Boston Properties

Given the investment horizon of 90 days Essential Properties is expected to generate 7.74 times less return on investment than Boston Properties. But when comparing it to its historical volatility, Essential Properties Realty is 1.14 times less risky than Boston Properties. It trades about 0.01 of its potential returns per unit of risk. Boston Properties is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  7,853  in Boston Properties on September 16, 2024 and sell it today you would earn a total of  140.00  from holding Boston Properties or generate 1.78% return on investment over 90 days.

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

Essential Properties Realty  vs.  Boston Properties

Essential Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essential Properties Realty has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Essential Properties is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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 relatively invariable basic indicators, Boston Properties is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Essential Properties and Boston Properties

The main advantage of trading using opposite Essential Properties and Boston Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essential Properties 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 Essential Properties Realty 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.