Correlation Between First Industrial and Boston Properties

Can any of the company-specific risk be diversified away by investing in both First Industrial 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 First Industrial and Boston Properties into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Industrial Realty and Boston Properties, you can compare the effects of market volatilities on First Industrial 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 First Industrial with a short position of Boston Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Industrial and Boston Properties.

Diversification Opportunities for First Industrial and Boston Properties

-0.31

Correlation Coefficient

First Industrial  Boston Properties

Very good diversification

The 3 months correlation between First and Boston is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding First Industrial Realty and Boston Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Properties and First Industrial 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 First Industrial Realty 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 First Industrial i.e., First Industrial and Boston Properties go up and down completely randomly.

Pair Corralation between First Industrial and Boston Properties

Allowing for the 90-day total investment horizon First Industrial is expected to generate 2.55 times less return on investment than Boston Properties. But when comparing it to its historical volatility, First Industrial Realty is 1.71 times less risky than Boston Properties. It trades about 0.03 of its potential returns per unit of risk. Boston Properties is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,967  in Boston Properties on August 31, 2024 and sell it today you would earn a total of  2,319  from holding Boston Properties or generate 38.86% return on investment over 90 days.

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

First Industrial Realty  vs.  Boston Properties

First Industrial Realty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Industrial Realty has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, First Industrial is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Boston Properties

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Properties are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Boston Properties reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Industrial and Boston Properties

The main advantage of trading using opposite First Industrial and Boston Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Industrial 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 First Industrial Realty 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..