Correlation Between American Funds and Real Estate

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

By analyzing existing cross correlation between American Funds 2065 and Real Estate Ultrasector, you can compare the effects of market volatilities on American Funds 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 American Funds with a short position of Real Estate. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Real Estate.

Diversification Opportunities for American Funds and Real Estate

0.02

Correlation Coefficient

American Funds  Real Estate

Significant diversification

The 3 months correlation between American and Real is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding American Funds 2065 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 American Funds 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 American Funds 2065 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 American Funds i.e., American Funds and Real Estate go up and down completely randomly.

Pair Corralation between American Funds and Real Estate

Assuming the 90 days horizon American Funds 2065 is expected to generate 0.42 times more return on investment than Real Estate. However, American Funds 2065 is 2.37 times less risky than Real Estate. It trades about 0.15 of its potential returns per unit of risk. Real Estate Ultrasector is currently generating about 0.06 per unit of risk. If you would invest  1,714  in American Funds 2065 on September 4, 2024 and sell it today you would earn a total of  103.00  from holding American Funds 2065 or generate 6.01% return on investment over 90 days.

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

American Funds 2065  vs.  Real Estate Ultrasector

American Funds 2065

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds 2065 are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Real Estate Ultrasector

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Real Estate Ultrasector are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward 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 American Funds and Real Estate

The main advantage of trading using opposite American Funds and Real Estate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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 American Funds 2065 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.