Correlation Between Equity Commonwealth and Highwoods Properties

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

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

Diversification Opportunities for Equity Commonwealth and Highwoods Properties

0.35

Correlation Coefficient

Equity Commonwealth  Highwoods Properties

Weak diversification

The 3 months correlation between Equity and Highwoods is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Equity Commonwealth and Highwoods Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highwoods Properties and Equity Commonwealth 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 Equity Commonwealth 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 Equity Commonwealth i.e., Equity Commonwealth and Highwoods Properties go up and down completely randomly.

Pair Corralation between Equity Commonwealth and Highwoods Properties

Assuming the 90 days trading horizon Equity Commonwealth is expected to generate 3.0 times less return on investment than Highwoods Properties. But when comparing it to its historical volatility, Equity Commonwealth is 6.58 times less risky than Highwoods Properties. It trades about 0.13 of its potential returns per unit of risk. Highwoods Properties is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,124  in Highwoods Properties on September 1, 2024 and sell it today you would earn a total of  122.00  from holding Highwoods Properties or generate 3.91% return on investment over 90 days.

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

Equity Commonwealth  vs.  Highwoods Properties

Equity Commonwealth

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Commonwealth are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Equity Commonwealth is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Highwoods Properties

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Highwoods Properties are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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 Equity Commonwealth and Highwoods Properties

The main advantage of trading using opposite Equity Commonwealth and Highwoods Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Commonwealth 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 Equity Commonwealth 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.