Correlation Between True North and Pro Real

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

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

Diversification Opportunities for True North and Pro Real

0.76

Correlation Coefficient

True North  Pro Real

Poor diversification

The 3 months correlation between True and Pro is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding True North Commercial and Pro Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pro Real Estate and True North 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 True North Commercial are associated (or correlated) with Pro Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pro Real Estate has no effect on the direction of True North i.e., True North and Pro Real go up and down completely randomly.

Pair Corralation between True North and Pro Real

Assuming the 90 days trading horizon True North Commercial is expected to generate 2.41 times more return on investment than Pro Real. However, True North is 2.41 times more volatile than Pro Real Estate. It trades about 0.06 of its potential returns per unit of risk. Pro Real Estate is currently generating about 0.08 per unit of risk. If you would invest  1,043  in True North Commercial on September 3, 2024 and sell it today you would earn a total of  109.00  from holding True North Commercial or generate 10.45% return on investment over 90 days.

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

True North Commercial  vs.  Pro Real Estate

True North Commercial

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in True North Commercial are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, True North sustained solid returns over the last few months and may actually be approaching a breakup point.

Pro Real Estate

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pro Real Estate are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Pro Real may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with True North and Pro Real

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

The idea behind True North Commercial and Pro 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.