Correlation Between Realty Income and LXP Industrial

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

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

Diversification Opportunities for Realty Income and LXP Industrial

0.65

Correlation Coefficient

Realty Income  LXP Industrial

Poor diversification

The 3 months correlation between Realty and LXP is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and LXP Industrial Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LXP Industrial 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 LXP Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LXP Industrial Trust has no effect on the direction of Realty Income i.e., Realty Income and LXP Industrial go up and down completely randomly.

Pair Corralation between Realty Income and LXP Industrial

Taking into account the 90-day investment horizon Realty Income is expected to generate 0.84 times more return on investment than LXP Industrial. However, Realty Income is 1.19 times less risky than LXP Industrial. It trades about -0.09 of its potential returns per unit of risk. LXP Industrial Trust is currently generating about -0.1 per unit of risk. If you would invest  6,175  in Realty Income on September 1, 2024 and sell it today you would lose (386.00) from holding Realty Income or give up 6.25% of portfolio value over 90 days.

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

Realty Income  vs.  LXP Industrial 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 very healthy basic indicators, Realty Income is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

LXP Industrial Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LXP Industrial Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Realty Income and LXP Industrial

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

The idea behind Realty Income and LXP Industrial 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.