Correlation Between Office Properties and Boston Properties

Can any of the company-specific risk be diversified away by investing in both Office 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 Office 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 Office Properties Income and Boston Properties, you can compare the effects of market volatilities on Office 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 Office Properties with a short position of Boston Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Office Properties and Boston Properties.

Diversification Opportunities for Office Properties and Boston Properties

0.88

Correlation Coefficient

Office Properties  Boston Properties

Very poor diversification

The 3 months correlation between Office and Boston is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Office Properties Income and Boston Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Properties and Office 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 Office Properties Income 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 Office Properties i.e., Office Properties and Boston Properties go up and down completely randomly.

Pair Corralation between Office Properties and Boston Properties

Assuming the 90 days trading horizon Office Properties Income is expected to under-perform the Boston Properties. In addition to that, Office Properties is 1.95 times more volatile than Boston Properties. It trades about -0.21 of its total potential returns per unit of risk. Boston Properties is currently generating about -0.08 per unit of volatility. If you would invest  7,573  in Boston Properties on December 2, 2024 and sell it today you would lose (773.00) from holding Boston Properties or give up 10.21% of portfolio value over 90 days.

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

Office Properties Income  vs.  Boston Properties

Office Properties Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Office Properties Income 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 forward-looking signals remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Boston Properties

Risk-Adjusted Performance

Very Weak

Over the last 90 days Boston Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain 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 Office Properties and Boston Properties

The main advantage of trading using opposite Office Properties and Boston Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Office 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 Office Properties Income 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.