Correlation Between Realty Income and Equity Commonwealth

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

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

Diversification Opportunities for Realty Income and Equity Commonwealth

-0.69

Correlation Coefficient

Realty Income  Equity Commonwealth

Excellent diversification

The 3 months correlation between Realty and Equity is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Equity Commonwealth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Commonwealth 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 Equity Commonwealth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Commonwealth has no effect on the direction of Realty Income i.e., Realty Income and Equity Commonwealth go up and down completely randomly.

Pair Corralation between Realty Income and Equity Commonwealth

Taking into account the 90-day investment horizon Realty Income is expected to under-perform the Equity Commonwealth. In addition to that, Realty Income is 5.87 times more volatile than Equity Commonwealth. It trades about -0.14 of its total potential returns per unit of risk. Equity Commonwealth is currently generating about 0.1 per unit of volatility. If you would invest  2,478  in Equity Commonwealth on September 12, 2024 and sell it today you would earn a total of  27.00  from holding Equity Commonwealth or generate 1.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	92.06%
Values	Daily Returns

Realty Income  vs.  Equity Commonwealth

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.

Equity Commonwealth

Risk-Adjusted Performance

0 of 100

OK

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

Pair Trading with Realty Income and Equity Commonwealth

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

The idea behind Realty Income and Equity Commonwealth 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 Global Correlations module to find global opportunities by holding instruments from different markets.