Correlation Between Link Real and Scentre

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

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

Diversification Opportunities for Link Real and Scentre

-0.7

Correlation Coefficient

Link Real  Scentre

Excellent diversification

The 3 months correlation between Link and Scentre is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Link Real Estate and Scentre Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scentre Group and Link 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 Link Real Estate are associated (or correlated) with Scentre. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scentre Group has no effect on the direction of Link Real i.e., Link Real and Scentre go up and down completely randomly.

Pair Corralation between Link Real and Scentre

Assuming the 90 days horizon Link Real Estate is expected to under-perform the Scentre. In addition to that, Link Real is 7.14 times more volatile than Scentre Group. It trades about -0.24 of its total potential returns per unit of risk. Scentre Group is currently generating about -0.21 per unit of volatility. If you would invest  219.00  in Scentre Group on January 20, 2024 and sell it today you would lose (4.00) from holding Scentre Group or give up 1.83% of portfolio value over 90 days.

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

Link Real Estate  vs.  Scentre Group

Link Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Link Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Scentre Group

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Scentre Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Scentre may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Link Real and Scentre

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

The idea behind Link Real Estate and Scentre Group 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.