Correlation Between Prime Office and Future Park

Can any of the company-specific risk be diversified away by investing in both Prime Office and Future Park 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 Prime Office and Future Park into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Prime Office Leasehold and Future Park Leasehold, you can compare the effects of market volatilities on Prime Office and Future Park 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 Prime Office with a short position of Future Park. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prime Office and Future Park.

Diversification Opportunities for Prime Office and Future Park

0.22

Correlation Coefficient

Prime Office  Future Park

Modest diversification

The 3 months correlation between Prime and Future is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Prime Office Leasehold and Future Park Leasehold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Future Park Leasehold and Prime Office 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 Prime Office Leasehold are associated (or correlated) with Future Park. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Future Park Leasehold has no effect on the direction of Prime Office i.e., Prime Office and Future Park go up and down completely randomly.

Pair Corralation between Prime Office and Future Park

Assuming the 90 days trading horizon Prime Office is expected to generate 63.63 times less return on investment than Future Park. But when comparing it to its historical volatility, Prime Office Leasehold is 120.43 times less risky than Future Park. It trades about 0.2 of its potential returns per unit of risk. Future Park Leasehold is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,120  in Future Park Leasehold on August 31, 2024 and sell it today you would lose (1,120) from holding Future Park Leasehold or give up 100.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.32%
Values	Daily Returns

Prime Office Leasehold  vs.  Future Park Leasehold

Prime Office Leasehold

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prime Office Leasehold are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. Despite quite weak forward-looking signals, Prime Office disclosed solid returns over the last few months and may actually be approaching a breakup point.

Future Park Leasehold

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Future Park Leasehold are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Future Park reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prime Office and Future Park

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

The idea behind Prime Office Leasehold and Future Park Leasehold 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .