Correlation Between Energy Services and Real Estate

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

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

Diversification Opportunities for Energy Services and Real Estate

0.27

Correlation Coefficient

Energy Services  Real Estate

Modest diversification

The 3 months correlation between Energy and Real is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Energy Services 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 Energy Services 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 Energy Services 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 Energy Services i.e., Energy Services and Real Estate go up and down completely randomly.

Pair Corralation between Energy Services and Real Estate

Assuming the 90 days horizon Energy Services is expected to generate 18.06 times less return on investment than Real Estate. In addition to that, Energy Services is 1.59 times more volatile than Real Estate Fund. It trades about 0.0 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  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	Very Weak
Accuracy	99.8%
Values	Daily Returns

Energy Services Fund  vs.  Real Estate Fund

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.

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.

Pair Trading with Energy Services and Real Estate

The main advantage of trading using opposite Energy Services and Real Estate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Services 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 Energy Services Fund 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.