Correlation Between Weyerhaeuser and Realty Income

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

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

Diversification Opportunities for Weyerhaeuser and Realty Income

0.81

Correlation Coefficient

Weyerhaeuser  Realty Income

Very poor diversification

The 3 months correlation between Weyerhaeuser and Realty is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Weyerhaeuser and Realty Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Realty Income and Weyerhaeuser 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 Weyerhaeuser 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 Weyerhaeuser i.e., Weyerhaeuser and Realty Income go up and down completely randomly.

Pair Corralation between Weyerhaeuser and Realty Income

Allowing for the 90-day total investment horizon Weyerhaeuser is expected to under-perform the Realty Income. In addition to that, Weyerhaeuser is 1.28 times more volatile than Realty Income. It trades about -0.08 of its total potential returns per unit of risk. Realty Income is currently generating about -0.02 per unit of volatility. If you would invest  5,706  in Realty Income on November 28, 2024 and sell it today you would lose (96.00) from holding Realty Income or give up 1.68% of portfolio value over 90 days.

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

Weyerhaeuser  vs.  Realty Income

Weyerhaeuser

Risk-Adjusted Performance

Very Weak

Over the last 90 days Weyerhaeuser has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Realty Income

Risk-Adjusted Performance

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 very healthy basic indicators, Realty Income is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Weyerhaeuser and Realty Income

The main advantage of trading using opposite Weyerhaeuser and Realty Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Weyerhaeuser 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 Weyerhaeuser 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.