Correlation Between Large Cap and Real Estate

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

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

Diversification Opportunities for Large Cap and Real Estate

-0.45

Correlation Coefficient

Large Cap  Real Estate

Very good diversification

The 3 months correlation between Large and Real is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Real Estate Ultrasector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Estate Ultrasector and Large Cap 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 Large Cap Growth Profund 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 Ultrasector has no effect on the direction of Large Cap i.e., Large Cap and Real Estate go up and down completely randomly.

Pair Corralation between Large Cap and Real Estate

Assuming the 90 days horizon Large Cap Growth Profund is expected to generate 0.73 times more return on investment than Real Estate. However, Large Cap Growth Profund is 1.36 times less risky than Real Estate. It trades about 0.11 of its potential returns per unit of risk. Real Estate Ultrasector is currently generating about 0.04 per unit of risk. If you would invest  3,455  in Large Cap Growth Profund on September 13, 2024 and sell it today you would earn a total of  1,169  from holding Large Cap Growth Profund or generate 33.84% return on investment over 90 days.

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

Large Cap Growth Profund  vs.  Real Estate Ultrasector

Large Cap Growth

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Cap Growth Profund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Large Cap may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Real Estate Ultrasector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Real Estate Ultrasector has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Large Cap and Real Estate

The main advantage of trading using opposite Large Cap and Real Estate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Large Cap 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 Large Cap Growth Profund and Real Estate Ultrasector 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.