Correlation Between Western Asset and Boston Properties

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

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

Diversification Opportunities for Western Asset and Boston Properties

-0.5

Correlation Coefficient

Western Asset  Boston Properties

Very good diversification

The 3 months correlation between Western and Boston is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Western Asset Investment and Boston Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Properties and Western Asset 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 Western Asset Investment 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 Western Asset i.e., Western Asset and Boston Properties go up and down completely randomly.

Pair Corralation between Western Asset and Boston Properties

Considering the 90-day investment horizon Western Asset Investment is expected to under-perform the Boston Properties. But the stock apears to be less risky and, when comparing its historical volatility, Western Asset Investment is 2.61 times less risky than Boston Properties. The stock trades about -0.31 of its potential returns per unit of risk. The Boston Properties is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  8,131  in Boston Properties on August 20, 2024 and sell it today you would lose (278.00) from holding Boston Properties or give up 3.42% of portfolio value over 90 days.

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

Western Asset Investment  vs.  Boston Properties

Western Asset Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Investment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Western Asset is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Boston Properties

Risk-Adjusted Performance

11 of 100

Good

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 unfluctuating basic indicators, Boston Properties reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Asset and Boston Properties

The main advantage of trading using opposite Western Asset and Boston Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Asset 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 Western Asset Investment 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.