Correlation Between Real Estate and Small Cap
Can any of the company-specific risk be diversified away by investing in both Real Estate and Small Cap 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 Small Cap 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 Small Cap Value, you can compare the effects of market volatilities on Real Estate and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Estate and Small Cap.
Diversification Opportunities for Real Estate and Small Cap
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Real and Small is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Real Estate Fund and Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Real Estate i.e., Real Estate and Small Cap go up and down completely randomly.
Pair Corralation between Real Estate and Small Cap
Assuming the 90 days horizon Real Estate is expected to generate 1.19 times less return on investment than Small Cap. But when comparing it to its historical volatility, Real Estate Fund is 1.21 times less risky than Small Cap. It trades about 0.03 of its potential returns per unit of risk. Small Cap Value is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 954.00 in Small Cap Value on October 21, 2024 and sell it today you would earn a total of 126.00 from holding Small Cap Value or generate 13.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Real Estate Fund vs. Small Cap Value
Performance |
| Timeline |
| Real Estate Fund |
| Small Cap Value |
Real Estate and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Estate and Small Cap
The main advantage of trading using opposite Real Estate and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Estate position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's 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 |
| Small Cap vs. Value Fund Investor | Small Cap vs. Small Pany Fund | Small Cap vs. Mid Cap Value | Small Cap vs. Equity Income Fund |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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