Real estate: correlation between volumes and returns
This analysis will focus on companies in the real estate select sector index, assessing the existence of a correlation between its volumes and subsequent returns.
Figure 1. The figure shows the Real Estate Select Sector index performance since 2005 (source: https://www.investing.com/indices/dj-us-select-real-estate)
We will see if there is a correlation of returns between a short period characterized by an increase in prices and volumes, and an immediately subsequent period marked by an appreciation in the value of shares.
In particular, by taking the first 3 trading days of the month, the following conditions must be met:
- The total return of the first 3 days must be positive;
- The daily volumes of the first 3 days must be increasing according to the relation Volumet1 < Volumet2 < Volumet3;
- The average daily volume of the first 3 days must be higher than the average daily volume of the previous month plus 10%.
Respecting the constraints, let’s see how the stocks behave by entering the market long on day 4 and holding the position for 3 different holding periods: 1, 2 and 3 days.
|
Ticker |
Total Trades |
Avg Return 1st Period |
Win Ratio 1st Period |
Avg Return 2nd Period |
Win Ratio 2nd Period |
Avg Return 3rd Period |
Win Ratio 3rd Period |
|
AMT |
4 |
3,0% |
0,75 |
3,8% |
0,75 |
5,2% |
0,75 |
|
ARE |
2 |
3,3% |
1,00 |
3,7% |
1,00 |
4,9% |
1,00 |
|
AVB |
3 |
3,9% |
0,67 |
3,5% |
0,67 |
3,5% |
0,67 |
|
BXP |
4 |
6,8% |
1,00 |
6,7% |
1,00 |
8,0% |
1,00 |
|
CBRE |
6 |
2,2% |
0,67 |
2,2% |
0,67 |
2,9% |
0,67 |
|
CCI |
3 |
2,1% |
1,00 |
2,2% |
1,00 |
1,0% |
0,67 |
|
DLR |
6 |
5,2% |
0,83 |
5,9% |
0,83 |
5,9% |
0,83 |
|
DRE |
6 |
2,7% |
0,83 |
2,6% |
0,67 |
3,3% |
0,67 |
|
EQIX |
4 |
1,1% |
0,75 |
1,2% |
0,50 |
1,1% |
0,50 |
|
EQR |
5 |
5,1% |
1,00 |
6,9% |
1,00 |
7,6% |
1,00 |
|
ESS |
2 |
-2,2% |
0,50 |
-2,2% |
0,50 |
-0,3% |
0,50 |
|
EXR |
4 |
3,7% |
0,75 |
5,1% |
1,00 |
5,9% |
1,00 |
|
FRT |
3 |
0,0% |
0,67 |
0,8% |
0,67 |
7,1% |
0,67 |
|
HST |
9 |
-1,2% |
0,44 |
1,3% |
0,67 |
2,1% |
0,56 |
|
IRM |
0 |
||||||
|
KIM |
5 |
4,0% |
0,80 |
4,5% |
0,80 |
4,5% |
0,60 |
|
MAA |
2 |
6,5% |
1,00 |
6,1% |
1,00 |
7,1% |
1,00 |
|
O |
5 |
5,2% |
0,80 |
5,3% |
1,00 |
5,5% |
1,00 |
|
PEAK |
4 |
6,7% |
1,00 |
8,0% |
1,00 |
7,7% |
1,00 |
|
PLD |
3 |
5,4% |
1,00 |
5,6% |
1,00 |
6,3% |
1,00 |
|
PSA |
2 |
8,1% |
1,00 |
8,4% |
1,00 |
6,5% |
1,00 |
|
REG |
3 |
9,1% |
1,00 |
9,2% |
1,00 |
8,8% |
1,00 |
|
SBAC |
2 |
2,0% |
0,50 |
1,5% |
0,50 |
0,4% |
0,50 |
|
SLG |
2 |
12,0% |
1,00 |
13,3% |
1,00 |
13,8% |
1,00 |
|
SPG |
5 |
9,5% |
0,80 |
13,6% |
0,80 |
11,2% |
0,80 |
|
UDR |
8 |
3,4% |
0,63 |
5,1% |
0,75 |
6,2% |
0,75 |
|
VTR |
7 |
4,7% |
0,71 |
5,4% |
0,86 |
6,8% |
1,00 |
|
WELL |
3 |
6,9% |
1,00 |
6,8% |
1,00 |
7,5% |
1,00 |
|
WY |
4 |
2,1% |
0,75 |
3,9% |
0,75 |
3,3% |
0,75 |
By analysing the data, the following considerations can be made:
1st Holding Period – One day
- 1/29 stocks have a WR below 50%;
- 2/29 have a WR of 50%;
- 25/29 have a WR above 50%;
- In total, out of 116 observations resulting in a WR of 82%, only 2 in 19 stocks have a negative average return.
In total, the 116 trades observed produce an average return of 4.3%.
2st Holding Period – Two days
- 0/29 stocks have a WR below 50%;
- 3/29 have a WR of 50%;
- 25/29 have a WR above 50%;
- In total, out of 116 observations resulting in a WR of 83%, only 1 in 19 stocks has a negative average return
In total, the 116 trades observed produce an average return of 5%.
3st Holding Period – Three Days
- 0/29 stocks have a WR below 50%;
- 3/29 have a WR of 50%;
- 25/29 have a WR above 50%;
- In total, out of 116 observations resulting in a WR of 82%, only 1 in 19 stocks has a negative average return.
In total, the 116 trades observed produce an average return of 5.5%.
This settings strategy acquires strength and relevance from the good quantitative data that are derived from and support it.
However, the one presented here is non fully optimized, but it just represents an idea of how volumes and returns can be correlated.
Giuseppe Ferrulli
CEO, Radiqant
