Correlation Between FlexShares Global and Avantis Real

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

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

Diversification Opportunities for FlexShares Global and Avantis Real

0.8

Correlation Coefficient

FlexShares Global  Avantis Real

Very poor diversification

The 3 months correlation between FlexShares and Avantis is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Global Quality and Avantis Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avantis Real Estate and FlexShares Global 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 FlexShares Global Quality are associated (or correlated) with Avantis Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avantis Real Estate has no effect on the direction of FlexShares Global i.e., FlexShares Global and Avantis Real go up and down completely randomly.

Pair Corralation between FlexShares Global and Avantis Real

Given the investment horizon of 90 days FlexShares Global Quality is expected to generate 0.91 times more return on investment than Avantis Real. However, FlexShares Global Quality is 1.1 times less risky than Avantis Real. It trades about -0.04 of its potential returns per unit of risk. Avantis Real Estate is currently generating about -0.1 per unit of risk. If you would invest  6,125  in FlexShares Global Quality on September 13, 2024 and sell it today you would lose (90.75) from holding FlexShares Global Quality or give up 1.48% of portfolio value over 90 days.

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

FlexShares Global Quality  vs.  Avantis Real Estate

FlexShares Global Quality

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares Global Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, FlexShares Global is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Avantis Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avantis Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with FlexShares Global and Avantis Real

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

The idea behind FlexShares Global Quality and Avantis 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.