Correlation Between Dynex Capital and Power REIT

Can any of the company-specific risk be diversified away by investing in both Dynex Capital and Power REIT 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 Dynex Capital and Power REIT into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Dynex Capital and Power REIT

0.22

Correlation Coefficient

Dynex Capital  Power REIT

Modest diversification

The 3 months correlation between Dynex and Power is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Dynex Capital and Power REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power REIT and Dynex Capital 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 Dynex Capital are associated (or correlated) with Power REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power REIT has no effect on the direction of Dynex Capital i.e., Dynex Capital and Power REIT go up and down completely randomly.

Pair Corralation between Dynex Capital and Power REIT

Allowing for the 90-day total investment horizon Dynex Capital is expected to generate 15.73 times less return on investment than Power REIT. But when comparing it to its historical volatility, Dynex Capital is 21.23 times less risky than Power REIT. It trades about 0.1 of its potential returns per unit of risk. Power REIT is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  105.00  in Power REIT on September 23, 2024 and sell it today you would earn a total of  6.00  from holding Power REIT or generate 5.71% return on investment over 90 days.

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

Dynex Capital  vs.  Power REIT

Dynex Capital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dynex Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Dynex Capital is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Power REIT

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Power REIT are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Power REIT showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dynex Capital and Power REIT

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

The idea behind Dynex Capital and Power 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.