Can any of the company-specific risk be diversified away by investing in both Office Properties and Riocan 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 Office Properties and Riocan REIT 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 Riocan REIT, you can compare the effects of market volatilities on Office Properties and Riocan 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 Office Properties with a short position of Riocan REIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Office Properties and Riocan REIT.
Diversification Opportunities for Office Properties and Riocan REIT
The 3 months correlation between Office and Riocan is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Office Properties Income and Riocan REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Riocan REIT 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 Riocan REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Riocan REIT has no effect on the direction of Office Properties i.e., Office Properties and Riocan REIT go up and down completely randomly.
Pair Corralation between Office Properties and Riocan REIT
Assuming the 90 days horizon Office Properties Income is expected to generate 0.82 times more return on investment than Riocan REIT. However, Office Properties Income is 1.21 times less risky than Riocan REIT. It trades about 0.0 of its potential returns per unit of risk. Riocan REIT is currently generating about -0.05 per unit of risk. If you would invest 1,050 in Office Properties Income on March 6, 2024 and sell it today you would lose (7.00) from holding Office Properties Income or give up 0.67% of portfolio value over 90 days.
Over the last 90 days Office Properties Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Office Properties is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.
Over the last 90 days Riocan REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Riocan REIT is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.