Correlation Between Precious Metals and Real Estate
Can any of the company-specific risk be diversified away by investing in both Precious Metals 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 Precious Metals and Real Estate into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Precious Metals Fund and Real Estate Fund, you can compare the effects of market volatilities on Precious Metals 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 Precious Metals with a short position of Real Estate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Precious Metals and Real Estate.
Diversification Opportunities for Precious Metals and Real Estate
0.55 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Precious and Real is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Precious Metals Fund 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 Precious Metals 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 Precious Metals Fund 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 Precious Metals i.e., Precious Metals and Real Estate go up and down completely randomly.
Pair Corralation between Precious Metals and Real Estate
Assuming the 90 days horizon Precious Metals Fund is expected to generate 1.85 times more return on investment than Real Estate. However, Precious Metals is 1.85 times more volatile than Real Estate Fund. It trades about -0.16 of its potential returns per unit of risk. Real Estate Fund is currently generating about -0.37 per unit of risk. If you would invest 4,104 in Precious Metals Fund on September 25, 2024 and sell it today you would lose (289.00) from holding Precious Metals Fund or give up 7.04% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Precious Metals Fund vs. Real Estate Fund
Performance |
Timeline |
Precious Metals |
Real Estate Fund |
Precious Metals and Real Estate Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Precious Metals and Real Estate
The main advantage of trading using opposite Precious Metals and Real Estate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Precious Metals 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.Precious Metals vs. Basic Materials Fund | Precious Metals vs. Basic Materials Fund | Precious Metals vs. Banking Fund Class | Precious Metals vs. Basic Materials Fund |
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Check out your portfolio center.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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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