Correlation Between Nexpoint Real and TPG RE

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

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

Diversification Opportunities for Nexpoint Real and TPG RE

0.67

Correlation Coefficient

Nexpoint Real  TPG RE

Poor diversification

The 3 months correlation between Nexpoint and TPG is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Nexpoint Real Estate and TPG RE Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPG RE Finance and Nexpoint 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 Nexpoint Real Estate are associated (or correlated) with TPG RE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPG RE Finance has no effect on the direction of Nexpoint Real i.e., Nexpoint Real and TPG RE go up and down completely randomly.

Pair Corralation between Nexpoint Real and TPG RE

Given the investment horizon of 90 days Nexpoint Real Estate is expected to generate 1.31 times more return on investment than TPG RE. However, Nexpoint Real is 1.31 times more volatile than TPG RE Finance. It trades about 0.09 of its potential returns per unit of risk. TPG RE Finance is currently generating about 0.06 per unit of risk. If you would invest  1,585  in Nexpoint Real Estate on September 3, 2024 and sell it today you would earn a total of  192.00  from holding Nexpoint Real Estate or generate 12.11% return on investment over 90 days.

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

Nexpoint Real Estate  vs.  TPG RE Finance

Nexpoint Real Estate

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nexpoint Real Estate are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, Nexpoint Real reported solid returns over the last few months and may actually be approaching a breakup point.

TPG RE Finance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TPG RE Finance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, TPG RE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Nexpoint Real and TPG RE

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

The idea behind Nexpoint Real Estate and TPG RE Finance 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.