Correlation Between Phillips Edison and Smart REIT

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

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

Diversification Opportunities for Phillips Edison and Smart REIT

0.56

Correlation Coefficient

Phillips Edison  Smart REIT

Very weak diversification

The 3 months correlation between Phillips and Smart is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Phillips Edison Co and Smart REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smart REIT and Phillips Edison 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 Phillips Edison Co 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 Phillips Edison i.e., Phillips Edison and Smart REIT go up and down completely randomly.

Pair Corralation between Phillips Edison and Smart REIT

Given the investment horizon of 90 days Phillips Edison Co is expected to under-perform the Smart REIT. But the stock apears to be less risky and, when comparing its historical volatility, Phillips Edison Co is 1.03 times less risky than Smart REIT. The stock trades about -0.05 of its potential returns per unit of risk. The Smart REIT is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,843  in Smart REIT on December 4, 2024 and sell it today you would lose (67.00) from holding Smart REIT or give up 3.64% of portfolio value over 90 days.

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

Phillips Edison Co  vs.  Smart REIT

Phillips Edison

Risk-Adjusted Performance

Very Weak

Over the last 90 days Phillips Edison Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Phillips Edison is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Smart REIT

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smart REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Smart REIT is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Phillips Edison and Smart REIT

The main advantage of trading using opposite Phillips Edison and Smart REIT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Phillips Edison 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 Phillips Edison Co 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.