Correlation Between Prudential and Realty Income

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

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

Diversification Opportunities for Prudential and Realty Income

0.68

Correlation Coefficient

Prudential  Realty Income

Poor diversification

The 3 months correlation between Prudential and Realty is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Real Estate and Realty Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Realty Income and Prudential 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 Prudential Real Estate are associated (or correlated) with Realty Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Realty Income has no effect on the direction of Prudential i.e., Prudential and Realty Income go up and down completely randomly.

Pair Corralation between Prudential and Realty Income

Assuming the 90 days horizon Prudential Real Estate is expected to generate 0.94 times more return on investment than Realty Income. However, Prudential Real Estate is 1.07 times less risky than Realty Income. It trades about 0.03 of its potential returns per unit of risk. Realty Income is currently generating about -0.01 per unit of risk. If you would invest  1,325  in Prudential Real Estate on October 25, 2024 and sell it today you would earn a total of  218.00  from holding Prudential Real Estate or generate 16.45% return on investment over 90 days.

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

Prudential Real Estate  vs.  Realty Income

Prudential Real Estate

Risk-Adjusted Performance

0 of 100

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.

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 latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Prudential and Realty Income

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

The idea behind Prudential Real Estate and Realty Income 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.