Correlation Between Real Estate and Realty Income
Can any of the company-specific risk be diversified away by investing in both Real Estate 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 Real Estate and Realty Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Estate Fund and Realty Income, you can compare the effects of market volatilities on Real Estate 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 Real Estate with a short position of Realty Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Estate and Realty Income.
Diversification Opportunities for Real Estate and Realty Income
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Real and Realty is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Real Estate Fund and Realty Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Realty Income and Real Estate 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 Real Estate Fund 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 has no effect on the direction of Real Estate i.e., Real Estate and Realty Income go up and down completely randomly.
Pair Corralation between Real Estate and Realty Income
Assuming the 90 days horizon Real Estate Fund is expected to generate 0.82 times more return on investment than Realty Income. However, Real Estate Fund is 1.22 times less risky than Realty Income. It trades about 0.22 of its potential returns per unit of risk. Realty Income is currently generating about -0.09 per unit of risk. If you would invest 4,165 in Real Estate Fund on September 1, 2024 and sell it today you would earn a total of 182.00 from holding Real Estate Fund or generate 4.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Real Estate Fund vs. Realty Income
Performance |
| Timeline |
| Real Estate Fund |
| Realty Income |
Real Estate and Realty Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Estate and Realty Income
The main advantage of trading using opposite Real Estate and Realty Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Estate 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.| Real Estate vs. Utilities Fund Investor | Real Estate vs. Health Care Fund | Real Estate vs. Transportation Fund Investor | Real Estate vs. Financial Services Fund |
| Realty Income vs. Federal Realty Investment | Realty Income vs. National Retail Properties | Realty Income vs. Kimco Realty | Realty Income vs. Simon Property Group |
Check out your portfolio center.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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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