Correlation Between Douglas Emmett and Realty Income

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

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

Diversification Opportunities for Douglas Emmett and Realty Income

-0.48

Correlation Coefficient

Douglas Emmett  Realty Income

Very good diversification

The 3 months correlation between Douglas and Realty is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Douglas Emmett and Realty Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Realty Income and Douglas Emmett 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 Douglas Emmett 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 Douglas Emmett i.e., Douglas Emmett and Realty Income go up and down completely randomly.

Pair Corralation between Douglas Emmett and Realty Income

Considering the 90-day investment horizon Douglas Emmett is expected to generate 1.85 times more return on investment than Realty Income. However, Douglas Emmett is 1.85 times more volatile than Realty Income. It trades about 0.15 of its potential returns per unit of risk. Realty Income is currently generating about 0.03 per unit of risk. If you would invest  1,309  in Douglas Emmett on September 29, 2024 and sell it today you would earn a total of  554.00  from holding Douglas Emmett or generate 42.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Douglas Emmett  vs.  Realty Income

Douglas Emmett

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Douglas Emmett are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Douglas Emmett may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Realty Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Realty Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Douglas Emmett and Realty Income

The main advantage of trading using opposite Douglas Emmett and Realty Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Douglas Emmett 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 Douglas Emmett and Realty Income 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.