Correlation Between Real Estate and Energy Services

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

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

Diversification Opportunities for Real Estate and Energy Services

0.16

Correlation Coefficient

Real Estate  Energy Services

Average diversification

The 3 months correlation between Real and Energy is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Real Estate Fund and Energy Services Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Services and Real Estate 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 Estate Fund are associated (or correlated) with Energy Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Services has no effect on the direction of Real Estate i.e., Real Estate and Energy Services go up and down completely randomly.

Pair Corralation between Real Estate and Energy Services

Assuming the 90 days horizon Real Estate Fund is expected to generate 0.63 times more return on investment than Energy Services. However, Real Estate Fund is 1.59 times less risky than Energy Services. It trades about 0.03 of its potential returns per unit of risk. Energy Services Fund is currently generating about 0.0 per unit of risk. If you would invest  3,425  in Real Estate Fund on September 20, 2024 and sell it today you would earn a total of  463.00  from holding Real Estate Fund or generate 13.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Real Estate Fund  vs.  Energy Services Fund

Real Estate Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Real Estate Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest unfluctuating 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.

Energy Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Services Fund 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 Real Estate and Energy Services

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

The idea behind Real Estate Fund and Energy Services 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..