Correlation Between City Office and Equity Commonwealth

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

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

Diversification Opportunities for City Office and Equity Commonwealth

-0.37

Correlation Coefficient

City Office  Equity Commonwealth

Very good diversification

The 3 months correlation between City and Equity is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding City Office REIT and Equity Commonwealth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Commonwealth and City 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 City Office REIT are associated (or correlated) with Equity Commonwealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Commonwealth has no effect on the direction of City Office i.e., City Office and Equity Commonwealth go up and down completely randomly.

Pair Corralation between City Office and Equity Commonwealth

Assuming the 90 days trading horizon City Office REIT is expected to under-perform the Equity Commonwealth. In addition to that, City Office is 2.19 times more volatile than Equity Commonwealth. It trades about -0.01 of its total potential returns per unit of risk. Equity Commonwealth is currently generating about 0.01 per unit of volatility. If you would invest  2,419  in Equity Commonwealth on January 20, 2024 and sell it today you would earn a total of  90.00  from holding Equity Commonwealth or generate 3.72% return on investment over 90 days.

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

City Office REIT  vs.  Equity Commonwealth

City Office REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days City Office REIT has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, City Office is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Equity Commonwealth

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Commonwealth are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Equity Commonwealth is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with City Office and Equity Commonwealth

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

The idea behind City Office REIT and Equity Commonwealth 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 the Money Managers module to screen money managers from public funds and ETFs managed around the world.