Correlation Between Realty Income and Sotherly Hotels

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

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

Diversification Opportunities for Realty Income and Sotherly Hotels

0.66

Correlation Coefficient

Realty Income  Sotherly Hotels

Poor diversification

The 3 months correlation between Realty and Sotherly is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Sotherly Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sotherly Hotels 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 Sotherly Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sotherly Hotels has no effect on the direction of Realty Income i.e., Realty Income and Sotherly Hotels go up and down completely randomly.

Pair Corralation between Realty Income and Sotherly Hotels

Taking into account the 90-day investment horizon Realty Income is expected to under-perform the Sotherly Hotels. But the stock apears to be less risky and, when comparing its historical volatility, Realty Income is 4.57 times less risky than Sotherly Hotels. The stock trades about -0.24 of its potential returns per unit of risk. The Sotherly Hotels is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  120.00  in Sotherly Hotels on October 1, 2024 and sell it today you would lose (25.00) from holding Sotherly Hotels or give up 20.83% 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.  Sotherly Hotels

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.

Sotherly Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sotherly Hotels 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 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.

Pair Trading with Realty Income and Sotherly Hotels

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

The idea behind Realty Income and Sotherly Hotels 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.