Correlation Between COPT Defense and Vornado Realty

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

By analyzing existing cross correlation between COPT Defense Properties and Vornado Realty Trust, you can compare the effects of market volatilities on COPT Defense and Vornado 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 COPT Defense with a short position of Vornado Realty. Check out your portfolio center. Please also check ongoing floating volatility patterns of COPT Defense and Vornado Realty.

Diversification Opportunities for COPT Defense and Vornado Realty

0.7

Correlation Coefficient

COPT Defense  Vornado Realty

Poor diversification

The 3 months correlation between COPT and Vornado is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding COPT Defense Properties and Vornado Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vornado Realty Trust and COPT Defense 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 COPT Defense Properties are associated (or correlated) with Vornado Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vornado Realty Trust has no effect on the direction of COPT Defense i.e., COPT Defense and Vornado Realty go up and down completely randomly.

Pair Corralation between COPT Defense and Vornado Realty

Considering the 90-day investment horizon COPT Defense Properties is expected to generate 1.35 times more return on investment than Vornado Realty. However, COPT Defense is 1.35 times more volatile than Vornado Realty Trust. It trades about 0.13 of its potential returns per unit of risk. Vornado Realty Trust is currently generating about 0.03 per unit of risk. If you would invest  2,981  in COPT Defense Properties on September 13, 2024 and sell it today you would earn a total of  282.00  from holding COPT Defense Properties or generate 9.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

COPT Defense Properties  vs.  Vornado Realty Trust

COPT Defense Properties

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COPT Defense Properties are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent fundamental indicators, COPT Defense may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vornado Realty Trust

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vornado Realty Trust are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Vornado Realty is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with COPT Defense and Vornado Realty

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

The idea behind COPT Defense Properties and Vornado 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.