Correlation Between Realty Income and Elme Communities

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

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

Diversification Opportunities for Realty Income and Elme Communities

0.6

Correlation Coefficient

Realty Income  Elme Communities

Poor diversification

The 3 months correlation between Realty and Elme is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Elme Communities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elme Communities and Realty Income 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 Realty Income are associated (or correlated) with Elme Communities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elme Communities has no effect on the direction of Realty Income i.e., Realty Income and Elme Communities go up and down completely randomly.

Pair Corralation between Realty Income and Elme Communities

Taking into account the 90-day investment horizon Realty Income is expected to generate 1.39 times less return on investment than Elme Communities. But when comparing it to its historical volatility, Realty Income is 1.3 times less risky than Elme Communities. It trades about 0.04 of its potential returns per unit of risk. Elme Communities is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,279  in Elme Communities on September 19, 2024 and sell it today you would earn a total of  256.00  from holding Elme Communities or generate 20.02% return on investment over 90 days.

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

Realty Income  vs.  Elme Communities

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 latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Elme Communities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elme Communities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Realty Income and Elme Communities

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

The idea behind Realty Income and Elme Communities 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.