Correlation Between European Residential and Dynamic Active

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

By analyzing existing cross correlation between European Residential Real and Dynamic Active Dividend, you can compare the effects of market volatilities on European Residential and Dynamic Active 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 European Residential with a short position of Dynamic Active. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and Dynamic Active.

Diversification Opportunities for European Residential and Dynamic Active

0.35

Correlation Coefficient

European Residential  Dynamic Active

Weak diversification

The 3 months correlation between European and Dynamic is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real and Dynamic Active Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynamic Active Dividend and European Residential 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 European Residential Real are associated (or correlated) with Dynamic Active. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynamic Active Dividend has no effect on the direction of European Residential i.e., European Residential and Dynamic Active go up and down completely randomly.

Pair Corralation between European Residential and Dynamic Active

Assuming the 90 days trading horizon European Residential is expected to generate 5.62 times less return on investment than Dynamic Active. But when comparing it to its historical volatility, European Residential Real is 1.08 times less risky than Dynamic Active. It trades about 0.07 of its potential returns per unit of risk. Dynamic Active Dividend is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  5,197  in Dynamic Active Dividend on April 21, 2025 and sell it today you would earn a total of  1,533  from holding Dynamic Active Dividend or generate 29.5% return on investment over 90 days.

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

European Residential Real  vs.  Dynamic Active Dividend

European Residential Real

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, European Residential is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Dynamic Active Dividend

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Dynamic Active Dividend are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Dynamic Active displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with European Residential and Dynamic Active

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

The idea behind European Residential Real and Dynamic Active Dividend 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.