Correlation Between Midcap Fund and Real Estate

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

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

Diversification Opportunities for Midcap Fund and Real Estate

0.26

Correlation Coefficient

Midcap Fund  Real Estate

Modest diversification

The 3 months correlation between Midcap and Real is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Midcap Fund Class 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 Midcap Fund 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 Midcap Fund Class 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 Midcap Fund i.e., Midcap Fund and Real Estate go up and down completely randomly.

Pair Corralation between Midcap Fund and Real Estate

Assuming the 90 days horizon Midcap Fund Class is expected to under-perform the Real Estate. But the mutual fund apears to be less risky and, when comparing its historical volatility, Midcap Fund Class is 1.07 times less risky than Real Estate. The mutual fund trades about -0.03 of its potential returns per unit of risk. The Real Estate Securities is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,830  in Real Estate Securities on December 20, 2024 and sell it today you would earn a total of  48.00  from holding Real Estate Securities or generate 1.7% return on investment over 90 days.

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

Midcap Fund Class  vs.  Real Estate Securities

Midcap Fund Class

Risk-Adjusted Performance

Very Weak

Over the last 90 days Midcap Fund Class has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Midcap Fund 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

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Real Estate Securities are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Real Estate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Midcap Fund and Real Estate

The main advantage of trading using opposite Midcap Fund and Real Estate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Midcap Fund 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 Midcap Fund Class 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.