Correlation Between Communication Services and Real Estate

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

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

Diversification Opportunities for Communication Services and Real Estate

-0.12

Correlation Coefficient

Communication Services  Real Estate

Good diversification

The 3 months correlation between Communication and Real is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Communication Services Select and The Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Estate and Communication Services 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 Communication Services Select are associated (or correlated) with Real Estate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Real Estate has no effect on the direction of Communication Services i.e., Communication Services and Real Estate go up and down completely randomly.

Pair Corralation between Communication Services and Real Estate

Considering the 90-day investment horizon Communication Services Select is expected to generate 0.83 times more return on investment than Real Estate. However, Communication Services Select is 1.21 times less risky than Real Estate. It trades about 0.31 of its potential returns per unit of risk. The Real Estate is currently generating about 0.04 per unit of risk. If you would invest  8,546  in Communication Services Select on September 3, 2024 and sell it today you would earn a total of  1,375  from holding Communication Services Select or generate 16.09% return on investment over 90 days.

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

Communication Services Select  vs.  The Real Estate

Communication Services

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Communication Services Select are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, Communication Services exhibited solid returns over the last few months and may actually be approaching a breakup point.

Real Estate

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Real Estate are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Real Estate is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Communication Services and Real Estate

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

The idea behind Communication Services Select and The 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.