Correlation Between Realty Income and Retail Opportunity

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

By analyzing existing cross correlation between Realty Income and Retail Opportunity Investments, you can compare the effects of market volatilities on Realty Income and Retail Opportunity 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 Retail Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Realty Income and Retail Opportunity.

Diversification Opportunities for Realty Income and Retail Opportunity

-0.22

Correlation Coefficient

Realty Income  Retail Opportunity

Very good diversification

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

Pair Corralation between Realty Income and Retail Opportunity

Taking into account the 90-day investment horizon Realty Income is expected to under-perform the Retail Opportunity. But the stock apears to be less risky and, when comparing its historical volatility, Realty Income is 1.43 times less risky than Retail Opportunity. The stock trades about -0.05 of its potential returns per unit of risk. The Retail Opportunity Investments is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,502  in Retail Opportunity Investments on August 12, 2024 and sell it today you would earn a total of  231.00  from holding Retail Opportunity Investments or generate 15.38% 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.  Retail Opportunity Investments

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 very healthy basic indicators, Realty Income is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Retail Opportunity

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Retail Opportunity Investments are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward indicators, Retail Opportunity exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Realty Income and Retail Opportunity

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

The idea behind Realty Income and Retail Opportunity Investments 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..