Correlation Between Realty Income and Fevertree Drinks

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

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

Diversification Opportunities for Realty Income and Fevertree Drinks

0.55

Correlation Coefficient

Realty Income  Fevertree Drinks

Very weak diversification

The 3 months correlation between Realty and Fevertree is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income and Fevertree Drinks PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks PLC 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 Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks PLC has no effect on the direction of Realty Income i.e., Realty Income and Fevertree Drinks go up and down completely randomly.

Pair Corralation between Realty Income and Fevertree Drinks

Assuming the 90 days horizon Realty Income is expected to generate 0.52 times more return on investment than Fevertree Drinks. However, Realty Income is 1.92 times less risky than Fevertree Drinks. It trades about 0.05 of its potential returns per unit of risk. Fevertree Drinks PLC is currently generating about -0.17 per unit of risk. If you would invest  4,790  in Realty Income on September 23, 2024 and sell it today you would earn a total of  299.00  from holding Realty Income or generate 6.24% return on investment over 90 days.

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

Realty Income  vs.  Fevertree Drinks PLC

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. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Fevertree Drinks PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fevertree Drinks PLC 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 comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Realty Income and Fevertree Drinks

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

The idea behind Realty Income and Fevertree Drinks PLC 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.