Correlation Between Real Return and Commodityrealreturn

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

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

Diversification Opportunities for Real Return and Commodityrealreturn

0.6

Correlation Coefficient

Real Return  Commodityrealreturn

Poor diversification

The 3 months correlation between Real and Commodityrealreturn is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Real Return Fund and Commodityrealreturn Strategy F in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commodityrealreturn and Real Return 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 Real Return Fund are associated (or correlated) with Commodityrealreturn. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commodityrealreturn has no effect on the direction of Real Return i.e., Real Return and Commodityrealreturn go up and down completely randomly.

Pair Corralation between Real Return and Commodityrealreturn

Assuming the 90 days horizon Real Return is expected to generate 2.45 times less return on investment than Commodityrealreturn. But when comparing it to its historical volatility, Real Return Fund is 2.78 times less risky than Commodityrealreturn. It trades about 0.04 of its potential returns per unit of risk. Commodityrealreturn Strategy Fund is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,213  in Commodityrealreturn Strategy Fund on September 20, 2024 and sell it today you would earn a total of  86.00  from holding Commodityrealreturn Strategy Fund or generate 7.09% return on investment over 90 days.

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

Real Return Fund  vs.  Commodityrealreturn Strategy F

Real Return Fund

Risk-Adjusted Performance

0 of 100

Very Weak

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

Commodityrealreturn

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Real Return and Commodityrealreturn

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

The idea behind Real Return Fund and Commodityrealreturn Strategy Fund 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.