Correlation Between Hudson Pacific and City Office

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

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

Diversification Opportunities for Hudson Pacific and City Office

0.77

Correlation Coefficient

Hudson Pacific  City Office

Poor diversification

The 3 months correlation between Hudson and City is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Hudson Pacific Properties and City Office REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Office REIT and Hudson Pacific 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 Hudson Pacific Properties are associated (or correlated) with City Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Office REIT has no effect on the direction of Hudson Pacific i.e., Hudson Pacific and City Office go up and down completely randomly.

Pair Corralation between Hudson Pacific and City Office

Assuming the 90 days trading horizon Hudson Pacific is expected to generate 2.83 times less return on investment than City Office. But when comparing it to its historical volatility, Hudson Pacific Properties is 1.39 times less risky than City Office. It trades about 0.13 of its potential returns per unit of risk. City Office REIT is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,721  in City Office REIT on February 20, 2024 and sell it today you would earn a total of  89.00  from holding City Office REIT or generate 5.17% return on investment over 90 days.

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

Hudson Pacific Properties  vs.  City Office REIT

Hudson Pacific Properties

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hudson Pacific Properties are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Hudson Pacific is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

City Office REIT

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in City Office REIT are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, City Office may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Hudson Pacific and City Office

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

The idea behind Hudson Pacific Properties and City Office 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.