Correlation Between Government Securities and Real Estate
Can any of the company-specific risk be diversified away by investing in both Government Securities and Real Estate 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 Government Securities and Real Estate into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Government Securities Fund and Real Estate Securities, you can compare the effects of market volatilities on Government Securities and Real Estate 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 Government Securities with a short position of Real Estate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Government Securities and Real Estate.
Diversification Opportunities for Government Securities and Real Estate
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Government and Real is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Government Securities Fund and Real Estate Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Estate Securities and Government 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 Government Securities Fund are associated (or correlated) with Real Estate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Estate Securities has no effect on the direction of Government Securities i.e., Government Securities and Real Estate go up and down completely randomly.
Pair Corralation between Government Securities and Real Estate
Assuming the 90 days horizon Government Securities is expected to generate 1.18 times less return on investment than Real Estate. But when comparing it to its historical volatility, Government Securities Fund is 3.31 times less risky than Real Estate. It trades about 0.09 of its potential returns per unit of risk. Real Estate Securities is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3,058 in Real Estate Securities on August 28, 2024 and sell it today you would earn a total of 18.00 from holding Real Estate Securities or generate 0.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Government Securities Fund vs. Real Estate Securities
Performance |
| Timeline |
| Government Securities |
| Real Estate Securities |
Government Securities and Real Estate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Government Securities and Real Estate
The main advantage of trading using opposite Government Securities and Real Estate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Government Securities position performs unexpectedly, Real Estate 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 Estate will offset losses from the drop in Real Estate's long position.| Government Securities vs. Ultra Short Fixed Income | Government Securities vs. Siit Ultra Short | Government Securities vs. Ab Select Longshort | Government Securities vs. Calvert Short Duration |
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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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