Correlation Between Mongolia Growth and Boston Properties

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

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

Diversification Opportunities for Mongolia Growth and Boston Properties

0.71

Correlation Coefficient

Mongolia Growth  Boston Properties

Poor diversification

The 3 months correlation between Mongolia and Boston is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Mongolia Growth Group and Boston Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Properties and Mongolia Growth 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 Mongolia Growth Group 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 Mongolia Growth i.e., Mongolia Growth and Boston Properties go up and down completely randomly.

Pair Corralation between Mongolia Growth and Boston Properties

Assuming the 90 days horizon Mongolia Growth Group is expected to under-perform the Boston Properties. In addition to that, Mongolia Growth is 1.18 times more volatile than Boston Properties. It trades about -0.08 of its total potential returns per unit of risk. Boston Properties is currently generating about -0.04 per unit of volatility. If you would invest  7,365  in Boston Properties on December 20, 2024 and sell it today you would lose (479.00) from holding Boston Properties or give up 6.5% of portfolio value over 90 days.

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

Mongolia Growth Group  vs.  Boston Properties

Mongolia Growth Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mongolia Growth Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental 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

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 Mongolia Growth and Boston Properties

The main advantage of trading using opposite Mongolia Growth and Boston Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mongolia Growth 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 Mongolia Growth Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.