Correlation Between Retail Opportunity and Federal Realty

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

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

Diversification Opportunities for Retail Opportunity and Federal Realty

0.85

Correlation Coefficient

Retail Opportunity  Federal Realty

Very poor diversification

The 3 months correlation between Retail and Federal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Retail Opportunity Investments and Federal Realty Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Realty Investment and Retail Opportunity 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 Retail Opportunity Investments are associated (or correlated) with Federal Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Realty Investment has no effect on the direction of Retail Opportunity i.e., Retail Opportunity and Federal Realty go up and down completely randomly.

Pair Corralation between Retail Opportunity and Federal Realty

Given the investment horizon of 90 days Retail Opportunity Investments is expected to generate 1.61 times more return on investment than Federal Realty. However, Retail Opportunity is 1.61 times more volatile than Federal Realty Investment. It trades about 0.07 of its potential returns per unit of risk. Federal Realty Investment is currently generating about 0.09 per unit of risk. If you would invest  1,149  in Retail Opportunity Investments on July 11, 2024 and sell it today you would earn a total of  400.00  from holding Retail Opportunity Investments or generate 34.81% return on investment over 90 days.

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

Retail Opportunity Investments  vs.  Federal Realty Investment

Retail Opportunity

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Retail Opportunity Investments are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward indicators, Retail Opportunity exhibited solid returns over the last few months and may actually be approaching a breakup point.

Federal Realty Investment

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Realty Investment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Federal Realty is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Retail Opportunity and Federal Realty

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

The idea behind Retail Opportunity Investments and Federal Realty Investment 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 Transaction History module to view history of all your transactions and understand their impact on performance.