Correlation Between Federal Realty and Optima Health

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

By analyzing existing cross correlation between Federal Realty Investment and Optima Health plc, you can compare the effects of market volatilities on Federal Realty and Optima Health 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 Federal Realty with a short position of Optima Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Realty and Optima Health.

Diversification Opportunities for Federal Realty and Optima Health

-0.14

Correlation Coefficient

Federal Realty  Optima Health

Good diversification

The 3 months correlation between Federal and Optima is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Federal Realty Investment and Optima Health plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optima Health plc and Federal Realty 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 Federal Realty Investment are associated (or correlated) with Optima Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optima Health plc has no effect on the direction of Federal Realty i.e., Federal Realty and Optima Health go up and down completely randomly.

Pair Corralation between Federal Realty and Optima Health

Assuming the 90 days trading horizon Federal Realty Investment is expected to under-perform the Optima Health. But the stock apears to be less risky and, when comparing its historical volatility, Federal Realty Investment is 1.28 times less risky than Optima Health. The stock trades about -0.13 of its potential returns per unit of risk. The Optima Health plc is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  15,550  in Optima Health plc on November 29, 2024 and sell it today you would earn a total of  2,650  from holding Optima Health plc or generate 17.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

Federal Realty Investment  vs.  Optima Health plc

Federal Realty Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Realty Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Optima Health plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optima Health plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Optima Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Realty and Optima Health

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

The idea behind Federal Realty Investment and Optima Health plc 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.