Correlation Between National Health and Realty Income

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

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

Diversification Opportunities for National Health and Realty Income

0.61

Correlation Coefficient

National Health  Realty Income

Poor diversification

The 3 months correlation between National and Realty is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding National Health Investors and Realty Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Realty Income and National Health 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 National Health Investors 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 National Health i.e., National Health and Realty Income go up and down completely randomly.

Pair Corralation between National Health and Realty Income

Considering the 90-day investment horizon National Health Investors is expected to under-perform the Realty Income. In addition to that, National Health is 1.2 times more volatile than Realty Income. It trades about -0.2 of its total potential returns per unit of risk. Realty Income is currently generating about -0.21 per unit of volatility. If you would invest  6,150  in Realty Income on September 23, 2024 and sell it today you would lose (871.00) from holding Realty Income or give up 14.16% of portfolio value over 90 days.

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

National Health Investors  vs.  Realty Income

National Health Investors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Health Investors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

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.

Pair Trading with National Health and Realty Income

The main advantage of trading using opposite National Health and Realty Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Health 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 National Health Investors 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.