Correlation Between W P and GPT
Can any of the company-specific risk be diversified away by investing in both W P and GPT 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 W P and GPT into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between W P Carey and GPT Group, you can compare the effects of market volatilities on W P and GPT 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 W P with a short position of GPT. Check out your portfolio center. Please also check ongoing floating volatility patterns of W P and GPT.
Diversification Opportunities for W P and GPT
Poor diversification
The 3 months correlation between WPY and GPT is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding W P Carey and GPT Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GPT Group and W P 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 W P Carey are associated (or correlated) with GPT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GPT Group has no effect on the direction of W P i.e., W P and GPT go up and down completely randomly.
Pair Corralation between W P and GPT
Assuming the 90 days horizon W P Carey is expected to generate 0.4 times more return on investment than GPT. However, W P Carey is 2.52 times less risky than GPT. It trades about 0.23 of its potential returns per unit of risk. GPT Group is currently generating about 0.09 per unit of risk. If you would invest 5,066 in W P Carey on September 4, 2024 and sell it today you would earn a total of 252.00 from holding W P Carey or generate 4.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
W P Carey vs. GPT Group
Performance |
| Timeline |
| W P Carey |
| GPT Group |
W P and GPT Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with W P and GPT
The main advantage of trading using opposite W P and GPT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if W P position performs unexpectedly, GPT 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 GPT will offset losses from the drop in GPT's long position.The idea behind W P Carey and GPT Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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