Correlation Between RF Materials and TOPMATERIAL

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

By analyzing existing cross correlation between RF Materials Co and TOPMATERIAL LTD, you can compare the effects of market volatilities on RF Materials and TOPMATERIAL 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 RF Materials with a short position of TOPMATERIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of RF Materials and TOPMATERIAL.

Diversification Opportunities for RF Materials and TOPMATERIAL

0.58

Correlation Coefficient

RF Materials  TOPMATERIAL

Very weak diversification

The 3 months correlation between 327260 and TOPMATERIAL is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding RF Materials Co and TOPMATERIAL LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOPMATERIAL LTD and RF Materials 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 RF Materials Co are associated (or correlated) with TOPMATERIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOPMATERIAL LTD has no effect on the direction of RF Materials i.e., RF Materials and TOPMATERIAL go up and down completely randomly.

Pair Corralation between RF Materials and TOPMATERIAL

Assuming the 90 days trading horizon RF Materials Co is expected to generate 1.13 times more return on investment than TOPMATERIAL. However, RF Materials is 1.13 times more volatile than TOPMATERIAL LTD. It trades about -0.13 of its potential returns per unit of risk. TOPMATERIAL LTD is currently generating about -0.18 per unit of risk. If you would invest  707,000  in RF Materials Co on August 31, 2024 and sell it today you would lose (173,000) from holding RF Materials Co or give up 24.47% of portfolio value over 90 days.

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

RF Materials Co  vs.  TOPMATERIAL LTD

RF Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RF Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

TOPMATERIAL LTD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOPMATERIAL LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with RF Materials and TOPMATERIAL

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

The idea behind RF Materials Co and TOPMATERIAL LTD 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.