Correlation Between Equity Residential and Boston Properties

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Can any of the company-specific risk be diversified away by investing in both Equity Residential 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 Equity Residential and Boston Properties into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Equity Residential and Boston Properties, you can compare the effects of market volatilities on Equity Residential 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 Equity Residential with a short position of Boston Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Equity Residential and Boston Properties.

Diversification Opportunities for Equity Residential and Boston Properties

0.3
  Correlation Coefficient

Weak diversification

The 3 months correlation between Equity and Boston is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Equity Residential and Boston Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Properties and Equity Residential 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 Equity Residential 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 Equity Residential i.e., Equity Residential and Boston Properties go up and down completely randomly.

Pair Corralation between Equity Residential and Boston Properties

Considering the 90-day investment horizon Equity Residential is expected to generate 0.82 times more return on investment than Boston Properties. However, Equity Residential is 1.22 times less risky than Boston Properties. It trades about 0.04 of its potential returns per unit of risk. Boston Properties is currently generating about 0.0 per unit of risk. If you would invest  6,880  in Equity Residential on May 14, 2022 and sell it today you would earn a total of  1,116  from holding Equity Residential or generate 16.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Equity Residential  vs.  Boston Properties

 Performance (%) 
       Timeline  
Equity Residential 
Equity Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Equity Residential are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, Equity Residential may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Equity Price Channel

Boston Properties 
Boston Performance
0 of 100
Over the last 90 days Boston Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in September 2022. The recent disarray may also be a sign of long period up-swing for the firm insiders.

Boston Price Channel

Equity Residential and Boston Properties Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Equity Residential and Boston Properties

The main advantage of trading using opposite Equity Residential and Boston Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Residential 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 Equity Residential 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.
Check out your portfolio center. 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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