Correlation Between Real Estate and Small-cap Value
Can any of the company-specific risk be diversified away by investing in both Real Estate and Small-cap Value 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 Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Real Estate Ultrasector and Small Cap Value Profund, you can compare the effects of market volatilities on Real Estate and Small-cap Value 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 Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Estate and Small-cap Value.
Diversification Opportunities for Real Estate and Small-cap Value
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Real and SMALL-CAP is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Real Estate Ultrasector and Small Cap Value Profund 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 Ultrasector are associated (or correlated) with Small-cap Value. 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 Value go up and down completely randomly.
Pair Corralation between Real Estate and Small-cap Value
Assuming the 90 days horizon Real Estate is expected to generate 1.12 times less return on investment than Small-cap Value. In addition to that, Real Estate is 1.24 times more volatile than Small Cap Value Profund. It trades about 0.04 of its total potential returns per unit of risk. Small Cap Value Profund is currently generating about 0.05 per unit of volatility. If you would invest 7,674 in Small Cap Value Profund on November 3, 2024 and sell it today you would earn a total of 1,123 from holding Small Cap Value Profund or generate 14.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.6% |
| Values | Daily Returns |
Real Estate Ultrasector vs. Small Cap Value Profund
Performance |
| Timeline |
| Real Estate Ultrasector |
| Small Cap Value |
Real Estate and Small-cap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Real Estate and Small-cap Value
The main advantage of trading using opposite Real Estate and Small-cap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Real Estate position performs unexpectedly, Small-cap Value 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 Value will offset losses from the drop in Small-cap Value's long position.| Real Estate vs. Aqr Global Macro | Real Estate vs. Ab Global Bond | Real Estate vs. Kinetics Global Fund | Real Estate vs. Morningstar Global Income |
| Small-cap Value vs. American Funds Retirement | Small-cap Value vs. Dimensional Retirement Income | Small-cap Value vs. Great West Moderately Aggressive | Small-cap Value vs. Putnman Retirement Ready |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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