Correlation Between Power REIT and Realty Income

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

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

Diversification Opportunities for Power REIT and Realty Income

-0.5

Correlation Coefficient

Power REIT  Realty Income

Very good diversification

The 3 months correlation between Power and Realty is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Power REIT and Realty Income Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Realty Income Corp and Power REIT 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 Power REIT are associated (or correlated) with Realty Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Realty Income Corp has no effect on the direction of Power REIT i.e., Power REIT and Realty Income go up and down completely randomly.

Pair Corralation between Power REIT and Realty Income

Allowing for the 90-day total investment horizon Power REIT is expected to generate 9.74 times more return on investment than Realty Income. However, Power REIT is 9.74 times more volatile than Realty Income Corp. It trades about 0.07 of its potential returns per unit of risk. Realty Income Corp is currently generating about 0.1 per unit of risk. If you would invest  62.00  in Power REIT on February 11, 2024 and sell it today you would earn a total of  7.00  from holding Power REIT or generate 11.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.73%
Values	Daily Returns

Power REIT  vs.  Realty Income Corp

Power REIT

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power REIT are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Power REIT showed solid returns over the last few months and may actually be approaching a breakup point.

Realty Income Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Realty Income Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Realty Income is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Power REIT and Realty Income

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

The idea behind Power REIT and Realty Income Corp 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.