Correlation Between Ascott Residence and Necessity Retail

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

By analyzing existing cross correlation between Ascott Residence Trust and Necessity Retail REIT, you can compare the effects of market volatilities on Ascott Residence and Necessity Retail 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 Ascott Residence with a short position of Necessity Retail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ascott Residence and Necessity Retail.

Diversification Opportunities for Ascott Residence and Necessity Retail

0.0

Correlation Coefficient

Ascott Residence  Necessity Retail

Pay attention - limited upside

The 3 months correlation between Ascott and Necessity is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Ascott Residence Trust and Necessity Retail REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Necessity Retail REIT and Ascott Residence 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 Ascott Residence Trust are associated (or correlated) with Necessity Retail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Necessity Retail REIT has no effect on the direction of Ascott Residence i.e., Ascott Residence and Necessity Retail go up and down completely randomly.

Pair Corralation between Ascott Residence and Necessity Retail

Assuming the 90 days horizon Ascott Residence Trust is expected to generate 1.46 times more return on investment than Necessity Retail. However, Ascott Residence is 1.46 times more volatile than Necessity Retail REIT. It trades about 0.04 of its potential returns per unit of risk. Necessity Retail REIT is currently generating about -0.03 per unit of risk. If you would invest  54.00  in Ascott Residence Trust on October 25, 2024 and sell it today you would earn a total of  18.00  from holding Ascott Residence Trust or generate 33.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	23.68%
Values	Daily Returns

Ascott Residence Trust  vs.  Necessity Retail REIT

Ascott Residence Trust

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Ascott Residence Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ascott Residence is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Necessity Retail REIT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Necessity Retail REIT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Necessity Retail is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Ascott Residence and Necessity Retail

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

The idea behind Ascott Residence Trust and Necessity Retail REIT 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.