Correlation Between Exchange Income and Freehold Royalties

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

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

Diversification Opportunities for Exchange Income and Freehold Royalties

0.42

Correlation Coefficient

Exchange Income  Freehold Royalties

Very weak diversification

The 3 months correlation between Exchange and Freehold is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Exchange Income and Freehold Royalties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freehold Royalties and Exchange Income 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 Exchange Income are associated (or correlated) with Freehold Royalties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freehold Royalties has no effect on the direction of Exchange Income i.e., Exchange Income and Freehold Royalties go up and down completely randomly.

Pair Corralation between Exchange Income and Freehold Royalties

Assuming the 90 days trading horizon Exchange Income is expected to under-perform the Freehold Royalties. In addition to that, Exchange Income is 1.12 times more volatile than Freehold Royalties. It trades about -0.19 of its total potential returns per unit of risk. Freehold Royalties is currently generating about 0.05 per unit of volatility. If you would invest  1,243  in Freehold Royalties on December 29, 2024 and sell it today you would earn a total of  42.00  from holding Freehold Royalties or generate 3.38% return on investment over 90 days.

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

Exchange Income  vs.  Freehold Royalties

Exchange Income

Risk-Adjusted Performance

Very Weak

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

Freehold Royalties

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Freehold Royalties are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Freehold Royalties is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Exchange Income and Freehold Royalties

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

The idea behind Exchange Income and Freehold Royalties 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.