Correlation Between Real Estate and Small Capitalization
Can any of the company-specific risk be diversified away by investing in both Real Estate and Small Capitalization 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 Real Estate and Small Capitalization into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Estate Fund and Small Capitalization Portfolio, you can compare the effects of market volatilities on Real Estate and Small Capitalization 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 Real Estate with a short position of Small Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Estate and Small Capitalization.
Diversification Opportunities for Real Estate and Small Capitalization
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between REAL and Small is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Real Estate Fund and Small Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Capitalization and Real Estate 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 Real Estate Fund are associated (or correlated) with Small Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Capitalization has no effect on the direction of Real Estate i.e., Real Estate and Small Capitalization go up and down completely randomly.
Pair Corralation between Real Estate and Small Capitalization
Assuming the 90 days horizon Real Estate Fund is expected to generate 0.5 times more return on investment than Small Capitalization. However, Real Estate Fund is 1.99 times less risky than Small Capitalization. It trades about 0.03 of its potential returns per unit of risk. Small Capitalization Portfolio is currently generating about -0.01 per unit of risk. If you would invest 2,464 in Real Estate Fund on August 29, 2024 and sell it today you would earn a total of 358.00 from holding Real Estate Fund or generate 14.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Real Estate Fund vs. Small Capitalization Portfolio
Performance |
| Timeline |
| Real Estate Fund |
| Small Capitalization |
Real Estate and Small Capitalization Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Estate and Small Capitalization
The main advantage of trading using opposite Real Estate and Small Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Estate position performs unexpectedly, Small Capitalization 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 Small Capitalization will offset losses from the drop in Small Capitalization's long position.| Real Estate vs. Realty Income | Real Estate vs. Dynex Capital | Real Estate vs. First Industrial Realty | Real Estate vs. Healthcare Realty Trust |
| Small Capitalization vs. Mid Cap Growth | Small Capitalization vs. Growth Fund Of | Small Capitalization vs. Smallcap Growth Fund | Small Capitalization vs. Artisan Small Cap |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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