Correlation Between Preferred Securities and Capital Securities
Can any of the company-specific risk be diversified away by investing in both Preferred Securities and Capital Securities 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 Preferred Securities and Capital Securities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Preferred Securities Fund and Capital Securities Fund, you can compare the effects of market volatilities on Preferred Securities and Capital Securities 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 Preferred Securities with a short position of Capital Securities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Preferred Securities and Capital Securities.
Diversification Opportunities for Preferred Securities and Capital Securities
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Preferred and Capital is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Preferred Securities Fund and Capital Securities Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Securities and Preferred Securities 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 Preferred Securities Fund are associated (or correlated) with Capital Securities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Securities has no effect on the direction of Preferred Securities i.e., Preferred Securities and Capital Securities go up and down completely randomly.
Pair Corralation between Preferred Securities and Capital Securities
Assuming the 90 days horizon Preferred Securities is expected to generate 1.26 times less return on investment than Capital Securities. In addition to that, Preferred Securities is 1.03 times more volatile than Capital Securities Fund. It trades about 0.26 of its total potential returns per unit of risk. Capital Securities Fund is currently generating about 0.34 per unit of volatility. If you would invest 900.00 in Capital Securities Fund on September 2, 2024 and sell it today you would earn a total of 47.00 from holding Capital Securities Fund or generate 5.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Preferred Securities Fund vs. Capital Securities Fund
Performance |
| Timeline |
| Preferred Securities |
| Capital Securities |
Preferred Securities and Capital Securities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Preferred Securities and Capital Securities
The main advantage of trading using opposite Preferred Securities and Capital Securities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Preferred Securities position performs unexpectedly, Capital Securities 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 Capital Securities will offset losses from the drop in Capital Securities' long position.| Preferred Securities vs. Tiaa Cref Real Estate | Preferred Securities vs. Pender Real Estate | Preferred Securities vs. Virtus Real Estate | Preferred Securities vs. Us Real Estate |
| Capital Securities vs. Strategic Asset Management | Capital Securities vs. Strategic Asset Management | Capital Securities vs. Strategic Asset Management | Capital Securities vs. Strategic Asset Management |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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