Correlation Between Real Estate and Emerging Markets
Can any of the company-specific risk be diversified away by investing in both Real Estate and Emerging Markets 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 Emerging Markets 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 Emerging Markets Fund, you can compare the effects of market volatilities on Real Estate and Emerging Markets 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 Emerging Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Estate and Emerging Markets.
Diversification Opportunities for Real Estate and Emerging Markets
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Real and Emerging is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Real Estate Fund and Emerging Markets Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerging Markets 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 Emerging Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerging Markets has no effect on the direction of Real Estate i.e., Real Estate and Emerging Markets go up and down completely randomly.
Pair Corralation between Real Estate and Emerging Markets
Assuming the 90 days horizon Real Estate Fund is expected to generate 1.14 times more return on investment than Emerging Markets. However, Real Estate is 1.14 times more volatile than Emerging Markets Fund. It trades about 0.01 of its potential returns per unit of risk. Emerging Markets Fund is currently generating about -0.15 per unit of risk. If you would invest 2,808 in Real Estate Fund on August 27, 2024 and sell it today you would earn a total of 2.00 from holding Real Estate Fund or generate 0.07% 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. Emerging Markets Fund
Performance |
| Timeline |
| Real Estate Fund |
| Emerging Markets |
Real Estate and Emerging Markets Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Estate and Emerging Markets
The main advantage of trading using opposite Real Estate and Emerging Markets positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Estate position performs unexpectedly, Emerging Markets 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 Emerging Markets will offset losses from the drop in Emerging Markets' long position.| Real Estate vs. Utilities Fund Investor | Real Estate vs. Emerging Markets Fund | Real Estate vs. Heritage Fund Investor | Real Estate vs. Value Fund Investor |
| Emerging Markets vs. Heritage Fund Investor | Emerging Markets vs. Real Estate Fund | Emerging Markets vs. Global Growth Fund | Emerging Markets vs. Utilities Fund Investor |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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