Correlation Between Easterly Government and Great Portland

Can any of the company-specific risk be diversified away by investing in both Easterly Government and Great Portland 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 Easterly Government and Great Portland into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Easterly Government Properties and Great Portland Estates, you can compare the effects of market volatilities on Easterly Government and Great Portland 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 Easterly Government with a short position of Great Portland. Check out your portfolio center. Please also check ongoing floating volatility patterns of Easterly Government and Great Portland.

Diversification Opportunities for Easterly Government and Great Portland

0.47

Correlation Coefficient

Easterly Government  Great Portland

Very weak diversification

The 3 months correlation between Easterly and Great is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Easterly Government Properties and Great Portland Estates in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Portland Estates and Easterly Government 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 Easterly Government Properties are associated (or correlated) with Great Portland. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Portland Estates has no effect on the direction of Easterly Government i.e., Easterly Government and Great Portland go up and down completely randomly.

Pair Corralation between Easterly Government and Great Portland

Assuming the 90 days horizon Easterly Government Properties is expected to generate 1.02 times more return on investment than Great Portland. However, Easterly Government is 1.02 times more volatile than Great Portland Estates. It trades about -0.09 of its potential returns per unit of risk. Great Portland Estates is currently generating about -0.2 per unit of risk. If you would invest  1,155  in Easterly Government Properties on September 27, 2024 and sell it today you would lose (106.00) from holding Easterly Government Properties or give up 9.18% of portfolio value over 90 days.

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

Easterly Government Properties  vs.  Great Portland Estates

Easterly Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Easterly Government Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Great Portland Estates

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great Portland Estates has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward-looking signals remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Easterly Government and Great Portland

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

The idea behind Easterly Government Properties and Great Portland Estates 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.