Correlation Between Realty Income and COPT Defense

Can any of the company-specific risk be diversified away by investing in both Realty Income and COPT Defense 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 Realty Income and COPT Defense into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Realty Income and COPT Defense

-0.18

Correlation Coefficient

Realty Income  COPT Defense

Good diversification

The 3 months correlation between Realty and COPT is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and COPT Defense Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COPT Defense Properties and Realty Income 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 Realty Income are associated (or correlated) with COPT Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COPT Defense Properties has no effect on the direction of Realty Income i.e., Realty Income and COPT Defense go up and down completely randomly.

Pair Corralation between Realty Income and COPT Defense

Taking into account the 90-day investment horizon Realty Income is expected to under-perform the COPT Defense. But the stock apears to be less risky and, when comparing its historical volatility, Realty Income is 1.08 times less risky than COPT Defense. The stock trades about -0.24 of its potential returns per unit of risk. The COPT Defense Properties is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,000  in COPT Defense Properties on September 22, 2024 and sell it today you would earn a total of  66.00  from holding COPT Defense Properties or generate 2.2% return on investment over 90 days.

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

Realty Income  vs.  COPT Defense Properties

Realty Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Realty Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

COPT Defense Properties

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in COPT Defense Properties are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, COPT Defense is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Realty Income and COPT Defense

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

The idea behind Realty Income and COPT Defense 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.