Correlation Between Equity Index and Global Real

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

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

Diversification Opportunities for Equity Index and Global Real

0.58

Correlation Coefficient

Equity Index  Global Real

Very weak diversification

The 3 months correlation between Equity and Global is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Equity Index Investor and Global Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Real Estate and Equity Index 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 Equity Index Investor are associated (or correlated) with Global Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Real Estate has no effect on the direction of Equity Index i.e., Equity Index and Global Real go up and down completely randomly.

Pair Corralation between Equity Index and Global Real

Assuming the 90 days horizon Equity Index Investor is expected to under-perform the Global Real. In addition to that, Equity Index is 1.02 times more volatile than Global Real Estate. It trades about -0.1 of its total potential returns per unit of risk. Global Real Estate is currently generating about -0.03 per unit of volatility. If you would invest  946.00  in Global Real Estate on December 5, 2024 and sell it today you would lose (16.00) from holding Global Real Estate or give up 1.69% of portfolio value over 90 days.

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

Equity Index Investor  vs.  Global Real Estate

Equity Index Investor

Risk-Adjusted Performance

Very Weak

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

Global Real Estate

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Equity Index and Global Real

The main advantage of trading using opposite Equity Index and Global Real positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Equity Index position performs unexpectedly, Global Real 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 Global Real will offset losses from the drop in Global Real's long position.

The idea behind Equity Index Investor and Global Real Estate 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.