Correlation Between Materials Portfolio and Real Estate

Can any of the company-specific risk be diversified away by investing in both Materials Portfolio 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 Materials Portfolio and Real Estate into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Materials Portfolio Fidelity and Real Estate Securities, you can compare the effects of market volatilities on Materials Portfolio 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 Materials Portfolio with a short position of Real Estate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and Real Estate.

Diversification Opportunities for Materials Portfolio and Real Estate

0.48

Correlation Coefficient

Materials Portfolio  Real Estate

Very weak diversification

The 3 months correlation between Materials and Real is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity 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 Materials Portfolio 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 Materials Portfolio Fidelity 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 Materials Portfolio i.e., Materials Portfolio and Real Estate go up and down completely randomly.

Pair Corralation between Materials Portfolio and Real Estate

Assuming the 90 days horizon Materials Portfolio Fidelity is expected to generate 0.72 times more return on investment than Real Estate. However, Materials Portfolio Fidelity is 1.39 times less risky than Real Estate. It trades about -0.31 of its potential returns per unit of risk. Real Estate Securities is currently generating about -0.29 per unit of risk. If you would invest  9,907  in Materials Portfolio Fidelity on September 20, 2024 and sell it today you would lose (454.00) from holding Materials Portfolio Fidelity or give up 4.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Materials Portfolio Fidelity  vs.  Real Estate Securities

Materials Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Portfolio Fidelity has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Materials Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Real Estate Securities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Real Estate Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Materials Portfolio and Real Estate

The main advantage of trading using opposite Materials Portfolio and Real Estate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Portfolio 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.

The idea behind Materials Portfolio Fidelity and Real Estate Securities 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.

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .