Correlation Between CTO Realty and Nexpoint Residential

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

By analyzing existing cross correlation between CTO Realty Growth and Nexpoint Residential Trust, you can compare the effects of market volatilities on CTO Realty and Nexpoint Residential 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 CTO Realty with a short position of Nexpoint Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of CTO Realty and Nexpoint Residential.

Diversification Opportunities for CTO Realty and Nexpoint Residential

0.3

Correlation Coefficient

CTO Realty  Nexpoint Residential

Weak diversification

The 3 months correlation between CTO and Nexpoint is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding CTO Realty Growth and Nexpoint Residential Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nexpoint Residential and CTO Realty 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 CTO Realty Growth are associated (or correlated) with Nexpoint Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nexpoint Residential has no effect on the direction of CTO Realty i.e., CTO Realty and Nexpoint Residential go up and down completely randomly.

Pair Corralation between CTO Realty and Nexpoint Residential

Considering the 90-day investment horizon CTO Realty Growth is expected to generate 1.35 times more return on investment than Nexpoint Residential. However, CTO Realty is 1.35 times more volatile than Nexpoint Residential Trust. It trades about 0.08 of its potential returns per unit of risk. Nexpoint Residential Trust is currently generating about 0.02 per unit of risk. If you would invest  1,855  in CTO Realty Growth on September 2, 2024 and sell it today you would earn a total of  186.00  from holding CTO Realty Growth or generate 10.03% return on investment over 90 days.

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

CTO Realty Growth  vs.  Nexpoint Residential Trust

CTO Realty Growth

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CTO Realty Growth are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, CTO Realty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nexpoint Residential

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nexpoint Residential Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Nexpoint Residential is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CTO Realty and Nexpoint Residential

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

The idea behind CTO Realty Growth and Nexpoint Residential Trust 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.