Correlation Between Firm Capital and Smart REIT

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

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

Diversification Opportunities for Firm Capital and Smart REIT

-0.13

Correlation Coefficient

Firm Capital  Smart REIT

Good diversification

The 3 months correlation between Firm and Smart is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Firm Capital Property and Smart REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smart REIT and Firm Capital 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 Firm Capital Property are associated (or correlated) with Smart REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smart REIT has no effect on the direction of Firm Capital i.e., Firm Capital and Smart REIT go up and down completely randomly.

Pair Corralation between Firm Capital and Smart REIT

Assuming the 90 days horizon Firm Capital Property is expected to under-perform the Smart REIT. But the pink sheet apears to be less risky and, when comparing its historical volatility, Firm Capital Property is 1.08 times less risky than Smart REIT. The pink sheet trades about -0.36 of its potential returns per unit of risk. The Smart REIT is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,790  in Smart REIT on September 14, 2024 and sell it today you would earn a total of  1.00  from holding Smart REIT or generate 0.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Firm Capital Property  vs.  Smart REIT

Firm Capital Property

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Firm Capital Property are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Firm Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

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.

Pair Trading with Firm Capital and Smart REIT

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

The idea behind Firm Capital Property and Smart 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.

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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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.