Correlation Between Realty Income and Cedar Realty

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

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

Diversification Opportunities for Realty Income and Cedar Realty

-0.62

Correlation Coefficient

Realty Income  Cedar Realty

Excellent diversification

The 3 months correlation between Realty and Cedar is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Cedar Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cedar Realty Trust and Realty 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 Realty Income are associated (or correlated) with Cedar Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cedar Realty Trust has no effect on the direction of Realty Income i.e., Realty Income and Cedar Realty go up and down completely randomly.

Pair Corralation between Realty Income and Cedar Realty

Taking into account the 90-day investment horizon Realty Income is expected to under-perform the Cedar Realty. But the stock apears to be less risky and, when comparing its historical volatility, Realty Income is 2.73 times less risky than Cedar Realty. The stock trades about -0.41 of its potential returns per unit of risk. The Cedar Realty Trust is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,625  in Cedar Realty Trust on September 21, 2024 and sell it today you would lose (73.00) from holding Cedar Realty Trust or give up 4.49% of portfolio value over 90 days.

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

Realty Income  vs.  Cedar Realty Trust

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.

Cedar Realty Trust

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Cedar Realty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Cedar Realty is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Realty Income and Cedar Realty

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

The idea behind Realty Income and Cedar 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.