Correlation Between Short Real and Capital World

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

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

Diversification Opportunities for Short Real and Capital World

-0.87

Correlation Coefficient

Short Real  Capital World

Pay attention - limited upside

The 3 months correlation between Short and Capital is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Short Real Estate and Capital World Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Bond and Short Real 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 Short Real Estate are associated (or correlated) with Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Bond has no effect on the direction of Short Real i.e., Short Real and Capital World go up and down completely randomly.

Pair Corralation between Short Real and Capital World

Assuming the 90 days horizon Short Real Estate is expected to generate 3.13 times more return on investment than Capital World. However, Short Real is 3.13 times more volatile than Capital World Bond. It trades about 0.02 of its potential returns per unit of risk. Capital World Bond is currently generating about 0.0 per unit of risk. If you would invest  751.00  in Short Real Estate on December 4, 2024 and sell it today you would earn a total of  6.00  from holding Short Real Estate or generate 0.8% return on investment over 90 days.

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

Short Real Estate  vs.  Capital World Bond

Short Real Estate

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Short Real Estate are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Short Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Capital World Bond

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital World Bond has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Capital World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Short Real and Capital World

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

The idea behind Short Real Estate and Capital World Bond 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..