Correlation Between Total Return and Real Return
Can any of the company-specific risk be diversified away by investing in both Total Return and Real Return 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 Total Return and Real Return into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Total Return Fund and Real Return Fund, you can compare the effects of market volatilities on Total Return and Real Return 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 Total Return with a short position of Real Return. Check out your portfolio center. Please also check ongoing floating volatility patterns of Total Return and Real Return.
Diversification Opportunities for Total Return and Real Return
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Total and Real is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Total Return Fund and Real Return Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Return Fund and Total Return 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 Total Return Fund are associated (or correlated) with Real Return. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Return Fund has no effect on the direction of Total Return i.e., Total Return and Real Return go up and down completely randomly.
Pair Corralation between Total Return and Real Return
Assuming the 90 days horizon Total Return Fund is expected to generate 1.16 times more return on investment than Real Return. However, Total Return is 1.16 times more volatile than Real Return Fund. It trades about 0.05 of its potential returns per unit of risk. Real Return Fund is currently generating about 0.04 per unit of risk. If you would invest 807.00 in Total Return Fund on August 31, 2024 and sell it today you would earn a total of 56.00 from holding Total Return Fund or generate 6.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Total Return Fund vs. Real Return Fund
Performance |
| Timeline |
| Total Return |
| Real Return Fund |
Total Return and Real Return Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Total Return and Real Return
The main advantage of trading using opposite Total Return and Real Return positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Total Return position performs unexpectedly, Real Return 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 Return will offset losses from the drop in Real Return's long position.| Total Return vs. The Gabelli Equity | Total Return vs. The Gabelli Equity | Total Return vs. Jpmorgan Equity Income | Total Return vs. Cutler Equity |
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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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