Correlation Between Real Estate and Vanguard Reit

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

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

Diversification Opportunities for Real Estate and Vanguard Reit

0.94

Correlation Coefficient

Real Estate  Vanguard Reit

Almost no diversification

The 3 months correlation between Real and VANGUARD is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Real Estate Securities and Vanguard Reit Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Reit Index and Real Estate 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 Real Estate Securities are associated (or correlated) with Vanguard Reit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Reit Index has no effect on the direction of Real Estate i.e., Real Estate and Vanguard Reit go up and down completely randomly.

Pair Corralation between Real Estate and Vanguard Reit

Assuming the 90 days horizon Real Estate is expected to generate 1.8 times less return on investment than Vanguard Reit. But when comparing it to its historical volatility, Real Estate Securities is 1.05 times less risky than Vanguard Reit. It trades about 0.04 of its potential returns per unit of risk. Vanguard Reit Index is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,135  in Vanguard Reit Index on September 3, 2024 and sell it today you would earn a total of  123.00  from holding Vanguard Reit Index or generate 3.92% return on investment over 90 days.

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

Real Estate Securities  vs.  Vanguard Reit Index

Real Estate Securities

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Real Estate Securities are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Real Estate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Reit Index

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Reit Index are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Reit is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Real Estate and Vanguard Reit

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

The idea behind Real Estate Securities and Vanguard Reit Index 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.