Correlation Between Real Estate and Largecap Value

Can any of the company-specific risk be diversified away by investing in both Real Estate and Largecap Value 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 Largecap Value 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 Largecap Value Fund, you can compare the effects of market volatilities on Real Estate and Largecap Value 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 Largecap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Real Estate and Largecap Value.

Diversification Opportunities for Real Estate and Largecap Value

0.55

Correlation Coefficient

Real Estate  Largecap Value

Very weak diversification

The 3 months correlation between Real and Largecap is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Real Estate Securities and Largecap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Largecap Value 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 Largecap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Largecap Value has no effect on the direction of Real Estate i.e., Real Estate and Largecap Value go up and down completely randomly.

Pair Corralation between Real Estate and Largecap Value

Assuming the 90 days horizon Real Estate Securities is expected to under-perform the Largecap Value. In addition to that, Real Estate is 1.21 times more volatile than Largecap Value Fund. It trades about -0.04 of its total potential returns per unit of risk. Largecap Value Fund is currently generating about 0.14 per unit of volatility. If you would invest  1,864  in Largecap Value Fund on May 2, 2025 and sell it today you would earn a total of  118.00  from holding Largecap Value Fund or generate 6.33% return on investment over 90 days.

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

Real Estate Securities  vs.  Largecap Value Fund

Real Estate Securities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Real Estate Securities has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Real Estate is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Largecap Value

Risk-Adjusted Performance

Good

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

Pair Trading with Real Estate and Largecap Value

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

The idea behind Real Estate Securities and Largecap Value Fund 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..