Correlation Between Large Company and Real Estate

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

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

Diversification Opportunities for Large Company and Real Estate

0.25

Correlation Coefficient

Large Company  Real Estate

Modest diversification

The 3 months correlation between Large and Real is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Large Pany Value and Real Estate Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Estate Fund and Large Company 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 Large Pany Value are associated (or correlated) with Real Estate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Estate Fund has no effect on the direction of Large Company i.e., Large Company and Real Estate go up and down completely randomly.

Pair Corralation between Large Company and Real Estate

Assuming the 90 days horizon Large Company is expected to generate 2.18 times less return on investment than Real Estate. But when comparing it to its historical volatility, Large Pany Value is 1.6 times less risky than Real Estate. It trades about 0.09 of its potential returns per unit of risk. Real Estate Fund is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,279  in Real Estate Fund on February 26, 2024 and sell it today you would earn a total of  58.00  from holding Real Estate Fund or generate 2.54% return on investment over 90 days.

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

Large Pany Value  vs.  Real Estate Fund

Large Pany Value

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Large Pany Value are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Large Company is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Real Estate Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Real Estate Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Real Estate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Company and Real Estate

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

The idea behind Large Pany Value and Real Estate Fund 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.