Correlation Between Real Estate and Inflation Protection
Can any of the company-specific risk be diversified away by investing in both Real Estate and Inflation Protection 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 Inflation Protection into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Estate Securities and Inflation Protection Fund, you can compare the effects of market volatilities on Real Estate and Inflation Protection 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 Inflation Protection. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Estate and Inflation Protection.
Diversification Opportunities for Real Estate and Inflation Protection
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Real and Inflation is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Real Estate Securities and Inflation Protection Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflation Protection 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 Securities are associated (or correlated) with Inflation Protection. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflation Protection has no effect on the direction of Real Estate i.e., Real Estate and Inflation Protection go up and down completely randomly.
Pair Corralation between Real Estate and Inflation Protection
Assuming the 90 days horizon Real Estate Securities is expected to generate 2.83 times more return on investment than Inflation Protection. However, Real Estate is 2.83 times more volatile than Inflation Protection Fund. It trades about 0.22 of its potential returns per unit of risk. Inflation Protection Fund is currently generating about 0.14 per unit of risk. If you would invest 2,983 in Real Estate Securities on September 3, 2024 and sell it today you would earn a total of 109.00 from holding Real Estate Securities or generate 3.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Real Estate Securities vs. Inflation Protection Fund
Performance |
| Timeline |
| Real Estate Securities |
| Inflation Protection |
Real Estate and Inflation Protection Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Estate and Inflation Protection
The main advantage of trading using opposite Real Estate and Inflation Protection positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Estate position performs unexpectedly, Inflation Protection 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 Inflation Protection will offset losses from the drop in Inflation Protection's long position.| Real Estate vs. Barings Emerging Markets | Real Estate vs. Growth Strategy Fund | Real Estate vs. Jpmorgan Emerging Markets | Real Estate vs. Dodge Cox Emerging |
| Inflation Protection vs. Jpmorgan Emerging Markets | Inflation Protection vs. Templeton Developing Markets | Inflation Protection vs. Rbc Emerging Markets | Inflation Protection vs. Locorr Market Trend |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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