Correlation Between Realty Income and Net Lease

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

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

Diversification Opportunities for Realty Income and Net Lease

-0.58

Correlation Coefficient

Realty Income  Net Lease

Excellent diversification

The 3 months correlation between Realty and Net is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Net Lease Office in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Net Lease Office 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 Net Lease. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Net Lease Office has no effect on the direction of Realty Income i.e., Realty Income and Net Lease go up and down completely randomly.

Pair Corralation between Realty Income and Net Lease

Taking into account the 90-day investment horizon Realty Income is expected to under-perform the Net Lease. But the stock apears to be less risky and, when comparing its historical volatility, Realty Income is 2.14 times less risky than Net Lease. The stock trades about -0.01 of its potential returns per unit of risk. The Net Lease Office is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,848  in Net Lease Office on September 24, 2024 and sell it today you would earn a total of  1,244  from holding Net Lease Office or generate 67.32% return on investment over 90 days.

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

Realty Income  vs.  Net Lease Office

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 uncertain 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.

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.

Pair Trading with Realty Income and Net Lease

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

The idea behind Realty Income and Net Lease Office 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.