Correlation Between Fundo Investimento and Equity Residential

Can any of the company-specific risk be diversified away by investing in both Fundo Investimento and Equity Residential 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 Fundo Investimento and Equity Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fundo Investimento Imobiliario and Equity Residential, you can compare the effects of market volatilities on Fundo Investimento and Equity Residential 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 Fundo Investimento with a short position of Equity Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fundo Investimento and Equity Residential.

Diversification Opportunities for Fundo Investimento and Equity Residential

-0.64

Correlation Coefficient

Fundo Investimento  Equity Residential

Excellent diversification

The 3 months correlation between Fundo and Equity is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Fundo Investimento Imobiliario and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential and Fundo Investimento 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 Fundo Investimento Imobiliario are associated (or correlated) with Equity Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Residential has no effect on the direction of Fundo Investimento i.e., Fundo Investimento and Equity Residential go up and down completely randomly.

Pair Corralation between Fundo Investimento and Equity Residential

Assuming the 90 days trading horizon Fundo Investimento is expected to generate 16.08 times less return on investment than Equity Residential. But when comparing it to its historical volatility, Fundo Investimento Imobiliario is 1.77 times less risky than Equity Residential. It trades about 0.01 of its potential returns per unit of risk. Equity Residential is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  13,871  in Equity Residential on October 5, 2024 and sell it today you would earn a total of  8,349  from holding Equity Residential or generate 60.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.62%
Values	Daily Returns

Fundo Investimento Imobiliario  vs.  Equity Residential

Fundo Investimento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fundo Investimento Imobiliario has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong essential indicators, Fundo Investimento is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Equity Residential

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Residential are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Equity Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fundo Investimento and Equity Residential

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

The idea behind Fundo Investimento Imobiliario and Equity Residential 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.