Correlation Between Tax-managed and Real Estate

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

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

Diversification Opportunities for Tax-managed and Real Estate

-0.06

Correlation Coefficient

Tax-managed  Real Estate

Good diversification

The 3 months correlation between Tax-managed and Real is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Tax Managed Mid Small and Real Estate Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Estate Fund and Tax-managed 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 Tax Managed Mid Small 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 Fund has no effect on the direction of Tax-managed i.e., Tax-managed and Real Estate go up and down completely randomly.

Pair Corralation between Tax-managed and Real Estate

Assuming the 90 days horizon Tax Managed Mid Small is expected to under-perform the Real Estate. In addition to that, Tax-managed is 1.03 times more volatile than Real Estate Fund. It trades about -0.12 of its total potential returns per unit of risk. Real Estate Fund is currently generating about 0.03 per unit of volatility. If you would invest  2,630  in Real Estate Fund on December 21, 2024 and sell it today you would earn a total of  38.00  from holding Real Estate Fund or generate 1.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Tax Managed Mid Small  vs.  Real Estate Fund

Tax Managed Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tax Managed Mid Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Real Estate Fund

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Real Estate Fund are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental 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 Tax-managed and Real Estate

The main advantage of trading using opposite Tax-managed and Real Estate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tax-managed 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 Tax Managed Mid Small and Real Estate 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.