Correlation Between Realty Income and Acadia Realty

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

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

Diversification Opportunities for Realty Income and Acadia Realty

-0.44

Correlation Coefficient

Realty Income  Acadia Realty

Very good diversification

The 3 months correlation between Realty and Acadia is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Acadia Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acadia Realty Trust 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 Acadia Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acadia Realty Trust has no effect on the direction of Realty Income i.e., Realty Income and Acadia Realty go up and down completely randomly.

Pair Corralation between Realty Income and Acadia Realty

Assuming the 90 days horizon Realty Income is expected to under-perform the Acadia Realty. But the stock apears to be less risky and, when comparing its historical volatility, Realty Income is 1.01 times less risky than Acadia Realty. The stock trades about -0.26 of its potential returns per unit of risk. The Acadia Realty Trust is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  2,380  in Acadia Realty Trust on September 22, 2024 and sell it today you would lose (80.00) from holding Acadia Realty Trust or give up 3.36% of portfolio value over 90 days.

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

Realty Income  vs.  Acadia Realty Trust

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. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Acadia Realty Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Acadia Realty Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Acadia Realty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Realty Income and Acadia Realty

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

The idea behind Realty Income and Acadia Realty Trust 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.