Correlation Between Realty Income and Stratus Properties

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

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

Diversification Opportunities for Realty Income and Stratus Properties

0.49

Correlation Coefficient

Realty Income  Stratus Properties

Very weak diversification

The 3 months correlation between Realty and Stratus is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Realty Income Corp and Stratus Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stratus Properties 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 Corp are associated (or correlated) with Stratus Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stratus Properties has no effect on the direction of Realty Income i.e., Realty Income and Stratus Properties go up and down completely randomly.

Pair Corralation between Realty Income and Stratus Properties

Taking into account the 90-day investment horizon Realty Income is expected to generate 2.96 times less return on investment than Stratus Properties. But when comparing it to its historical volatility, Realty Income Corp is 1.89 times less risky than Stratus Properties. It trades about 0.09 of its potential returns per unit of risk. Stratus Properties is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,225  in Stratus Properties on March 16, 2024 and sell it today you would earn a total of  273.00  from holding Stratus Properties or generate 12.27% return on investment over 90 days.

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

Realty Income Corp  vs.  Stratus Properties

Realty Income Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Realty Income Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Realty Income is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Stratus Properties

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stratus Properties are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Stratus Properties unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Realty Income and Stratus Properties

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

The idea behind Realty Income Corp and Stratus Properties 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.