Correlation Between Realty Income and Welltower

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

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

Diversification Opportunities for Realty Income and Welltower

0.9

Correlation Coefficient

Realty Income  Welltower

Almost no diversification

The 3 months correlation between Realty and Welltower is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Welltower in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Welltower 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 Welltower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Welltower has no effect on the direction of Realty Income i.e., Realty Income and Welltower go up and down completely randomly.

Pair Corralation between Realty Income and Welltower

Taking into account the 90-day investment horizon Realty Income is expected to generate 2.36 times less return on investment than Welltower. But when comparing it to its historical volatility, Realty Income is 1.22 times less risky than Welltower. It trades about 0.11 of its potential returns per unit of risk. Welltower is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  12,436  in Welltower on December 29, 2024 and sell it today you would earn a total of  2,556  from holding Welltower or generate 20.55% return on investment over 90 days.

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

Realty Income  vs.  Welltower

Realty Income

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Realty Income are ranked lower than 8 (%) 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.

Welltower

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Welltower are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Welltower disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Realty Income and Welltower

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

The idea behind Realty Income and Welltower 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.