Correlation Between Net Lease and Power REIT

Can any of the company-specific risk be diversified away by investing in both Net Lease and Power REIT 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 Net Lease and Power REIT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Net Lease Office and Power REIT, you can compare the effects of market volatilities on Net Lease and Power REIT 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 Net Lease with a short position of Power REIT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Net Lease and Power REIT.

Diversification Opportunities for Net Lease and Power REIT

0.28

Correlation Coefficient

Net Lease  Power REIT

Modest diversification

The 3 months correlation between Net and Power is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Net Lease Office and Power REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power REIT and Net Lease 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 Net Lease Office are associated (or correlated) with Power REIT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power REIT has no effect on the direction of Net Lease i.e., Net Lease and Power REIT go up and down completely randomly.

Pair Corralation between Net Lease and Power REIT

Given the investment horizon of 90 days Net Lease Office is expected to under-perform the Power REIT. But the stock apears to be less risky and, when comparing its historical volatility, Net Lease Office is 8.75 times less risky than Power REIT. The stock trades about -0.07 of its potential returns per unit of risk. The Power REIT is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  107.00  in Power REIT on September 24, 2024 and sell it today you would earn a total of  4.00  from holding Power REIT or generate 3.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Net Lease Office  vs.  Power REIT

Net Lease Office

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Net Lease Office has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Net Lease is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Power REIT

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Power REIT are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Power REIT showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Net Lease and Power REIT

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

The idea behind Net Lease Office and Power REIT 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.