Correlation Between Realty Income and Prudential

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

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

Diversification Opportunities for Realty Income and Prudential

0.48

Correlation Coefficient

Realty Income  Prudential

Very weak diversification

The 3 months correlation between Realty and Prudential is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Prudential Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Real Estate 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 Prudential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Real Estate has no effect on the direction of Realty Income i.e., Realty Income and Prudential go up and down completely randomly.

Pair Corralation between Realty Income and Prudential

Taking into account the 90-day investment horizon Realty Income is expected to generate 1.11 times more return on investment than Prudential. However, Realty Income is 1.11 times more volatile than Prudential Real Estate. It trades about 0.12 of its potential returns per unit of risk. Prudential Real Estate is currently generating about 0.01 per unit of risk. If you would invest  5,224  in Realty Income on December 21, 2024 and sell it today you would earn a total of  422.00  from holding Realty Income or generate 8.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Realty Income  vs.  Prudential Real Estate

Realty Income

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Realty Income are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Realty Income may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Prudential Real Estate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prudential Real Estate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Prudential 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 Prudential

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

The idea behind Realty Income and Prudential Real Estate 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.