Correlation Between Real Estate and Dow Jones
Can any of the company-specific risk be diversified away by investing in both Real Estate and Dow Jones 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 Dow Jones into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Real Estate and Dow Jones Industrial, you can compare the effects of market volatilities on Real Estate and Dow Jones 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 Dow Jones. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Estate and Dow Jones.
Diversification Opportunities for Real Estate and Dow Jones
-0.22 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Real and Dow is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding The Real Estate and Dow Jones Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Jones Industrial 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 The Real Estate are associated (or correlated) with Dow Jones. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Jones Industrial has no effect on the direction of Real Estate i.e., Real Estate and Dow Jones go up and down completely randomly.
Pair Corralation between Real Estate and Dow Jones
Assuming the 90 days horizon Real Estate is expected to generate 8.28 times less return on investment than Dow Jones. But when comparing it to its historical volatility, The Real Estate is 1.89 times less risky than Dow Jones. It trades about 0.09 of its potential returns per unit of risk. Dow Jones Industrial is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 4,179,460 in Dow Jones Industrial on September 5, 2024 and sell it today you would earn a total of 321,944 from holding Dow Jones Industrial or generate 7.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Real Estate vs. Dow Jones Industrial
Performance |
| Timeline |
Real Estate and Dow Jones Volatility Contrast
Predicted Return Density |
| Returns |
The Real Estate
Pair trading matchups for Real Estate
Dow Jones Industrial
Pair trading matchups for Dow Jones
Pair Trading with Real Estate and Dow Jones
The main advantage of trading using opposite Real Estate and Dow Jones positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Estate position performs unexpectedly, Dow Jones 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 Dow Jones will offset losses from the drop in Dow Jones' long position.| Real Estate vs. Optimum Small Mid Cap | Real Estate vs. Optimum Small Mid Cap | Real Estate vs. Ivy Apollo Multi Asset | Real Estate vs. Optimum Fixed Income |
| Dow Jones vs. Shake Shack | Dow Jones vs. Artisan Partners Asset | Dow Jones vs. Dave Busters Entertainment | Dow Jones vs. Meli Hotels International |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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