Correlation Between Alexandria Real and Realty Income

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

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

Diversification Opportunities for Alexandria Real and Realty Income

0.82

Correlation Coefficient

Alexandria Real  Realty Income

Very poor diversification

The 3 months correlation between Alexandria and Realty is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Alexandria Real Estate and Realty Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Realty Income and Alexandria Real 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 Alexandria Real Estate are associated (or correlated) with Realty Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Realty Income has no effect on the direction of Alexandria Real i.e., Alexandria Real and Realty Income go up and down completely randomly.

Pair Corralation between Alexandria Real and Realty Income

Considering the 90-day investment horizon Alexandria Real Estate is expected to under-perform the Realty Income. In addition to that, Alexandria Real is 1.34 times more volatile than Realty Income. It trades about -0.07 of its total potential returns per unit of risk. Realty Income is currently generating about -0.07 per unit of volatility. If you would invest  6,133  in Realty Income on August 30, 2024 and sell it today you would lose (301.00) from holding Realty Income or give up 4.91% of portfolio value over 90 days.

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

Alexandria Real Estate  vs.  Realty Income

Alexandria Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alexandria Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Alexandria Real is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Alexandria Real and Realty Income

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

The idea behind Alexandria Real Estate and Realty Income 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.