Correlation Between National Retail and Retail Opportunity

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

By analyzing existing cross correlation between National Retail Properties and Retail Opportunity Investments, you can compare the effects of market volatilities on National Retail and Retail Opportunity 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 National Retail with a short position of Retail Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Retail and Retail Opportunity.

Diversification Opportunities for National Retail and Retail Opportunity

-0.84

Correlation Coefficient

National Retail  Retail Opportunity

Pay attention - limited upside

The 3 months correlation between National and Retail is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and Retail Opportunity Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Retail Opportunity and National Retail 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 National Retail Properties are associated (or correlated) with Retail Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Retail Opportunity has no effect on the direction of National Retail i.e., National Retail and Retail Opportunity go up and down completely randomly.

Pair Corralation between National Retail and Retail Opportunity

Considering the 90-day investment horizon National Retail Properties is expected to under-perform the Retail Opportunity. In addition to that, National Retail is 7.55 times more volatile than Retail Opportunity Investments. It trades about -0.4 of its total potential returns per unit of risk. Retail Opportunity Investments is currently generating about 0.18 per unit of volatility. If you would invest  1,729  in Retail Opportunity Investments on October 10, 2024 and sell it today you would earn a total of  10.00  from holding Retail Opportunity Investments or generate 0.58% return on investment over 90 days.

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

National Retail Properties  vs.  Retail Opportunity Investments

National Retail Prop

Risk-Adjusted Performance

0 of 100

Very Weak

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

Retail Opportunity

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with National Retail and Retail Opportunity

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

The idea behind National Retail Properties and Retail Opportunity Investments 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.