Correlation Between Rising Rates and Short Real

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

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

Diversification Opportunities for Rising Rates and Short Real

0.68

Correlation Coefficient

Rising Rates  Short Real

Poor diversification

The 3 months correlation between Rising and Short is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Rising Rates Opportunity and Short Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Real Estate and Rising Rates 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 Rising Rates Opportunity are associated (or correlated) with Short Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Real Estate has no effect on the direction of Rising Rates i.e., Rising Rates and Short Real go up and down completely randomly.

Pair Corralation between Rising Rates and Short Real

Assuming the 90 days horizon Rising Rates is expected to generate 1.49 times less return on investment than Short Real. But when comparing it to its historical volatility, Rising Rates Opportunity is 2.0 times less risky than Short Real. It trades about 0.2 of its potential returns per unit of risk. Short Real Estate is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  771.00  in Short Real Estate on September 25, 2024 and sell it today you would earn a total of  79.00  from holding Short Real Estate or generate 10.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Rising Rates Opportunity  vs.  Short Real Estate

Rising Rates Opportunity

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rising Rates Opportunity are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Rising Rates may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Short Real Estate

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Short Real Estate are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Short Real may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rising Rates and Short Real

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

The idea behind Rising Rates Opportunity and Short Real Estate 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 Global Correlations module to find global opportunities by holding instruments from different markets.