Correlation Between Short Real and Large Capitalization

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

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

Diversification Opportunities for Short Real and Large Capitalization

-0.21

Correlation Coefficient

Short Real  Large Capitalization

Very good diversification

The 3 months correlation between Short and Large is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Short Real Estate and Large Capitalization Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Large Capitalization and Short Real 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 Short Real Estate are associated (or correlated) with Large Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Large Capitalization has no effect on the direction of Short Real i.e., Short Real and Large Capitalization go up and down completely randomly.

Pair Corralation between Short Real and Large Capitalization

Assuming the 90 days horizon Short Real is expected to generate 5.38 times less return on investment than Large Capitalization. But when comparing it to its historical volatility, Short Real Estate is 1.02 times less risky than Large Capitalization. It trades about 0.03 of its potential returns per unit of risk. Large Capitalization Growth is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  531.00  in Large Capitalization Growth on May 20, 2025 and sell it today you would earn a total of  51.00  from holding Large Capitalization Growth or generate 9.6% return on investment over 90 days.

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

Short Real Estate  vs.  Large Capitalization Growth

Short Real Estate

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Short Real Estate are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Short Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Large Capitalization

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Large Capitalization Growth are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Large Capitalization may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Short Real and Large Capitalization

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

The idea behind Short Real Estate and Large Capitalization Growth 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.