Correlation Between Realty Income and Vanguard Reit

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

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

Diversification Opportunities for Realty Income and Vanguard Reit

0.66

Correlation Coefficient

Realty Income  Vanguard Reit

Poor diversification

The 3 months correlation between Realty and Vanguard is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Vanguard Reit Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Reit Index 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 Vanguard Reit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Reit Index has no effect on the direction of Realty Income i.e., Realty Income and Vanguard Reit go up and down completely randomly.

Pair Corralation between Realty Income and Vanguard Reit

Taking into account the 90-day investment horizon Realty Income is expected to under-perform the Vanguard Reit. In addition to that, Realty Income is 1.1 times more volatile than Vanguard Reit Index. It trades about -0.21 of its total potential returns per unit of risk. Vanguard Reit Index is currently generating about -0.12 per unit of volatility. If you would invest  3,215  in Vanguard Reit Index on September 27, 2024 and sell it today you would lose (240.00) from holding Vanguard Reit Index or give up 7.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Realty Income  vs.  Vanguard Reit Index

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.

Vanguard Reit Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Reit Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest unfluctuating performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Realty Income and Vanguard Reit

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

The idea behind Realty Income and Vanguard Reit Index 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.