Correlation Between Industrial Select and Real Estate

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

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

Diversification Opportunities for Industrial Select and Real Estate

0.02

Correlation Coefficient

Industrial Select  Real Estate

Significant diversification

The 3 months correlation between Industrial and Real is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and The Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Real Estate and Industrial Select 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 Industrial Select Sector 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 Industrial Select i.e., Industrial Select and Real Estate go up and down completely randomly.

Pair Corralation between Industrial Select and Real Estate

Considering the 90-day investment horizon Industrial Select Sector is expected to generate 0.96 times more return on investment than Real Estate. However, Industrial Select Sector is 1.04 times less risky than Real Estate. It trades about 0.2 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  12,813  in Industrial Select Sector on September 3, 2024 and sell it today you would earn a total of  1,480  from holding Industrial Select Sector or generate 11.55% return on investment over 90 days.

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

Industrial Select Sector  vs.  The Real Estate

Industrial Select Sector

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Select Sector are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, Industrial Select may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Industrial Select and Real Estate

The main advantage of trading using opposite Industrial Select and Real Estate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select 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 Industrial Select Sector 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.