Correlation Between Ruentex Development and Eternal Materials

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

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

Diversification Opportunities for Ruentex Development and Eternal Materials

0.82

Correlation Coefficient

Ruentex Development  Eternal Materials

Very poor diversification

The 3 months correlation between Ruentex and Eternal is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Ruentex Development Co and Eternal Materials Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eternal Materials and Ruentex Development 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 Ruentex Development Co are associated (or correlated) with Eternal Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eternal Materials has no effect on the direction of Ruentex Development i.e., Ruentex Development and Eternal Materials go up and down completely randomly.

Pair Corralation between Ruentex Development and Eternal Materials

Assuming the 90 days trading horizon Ruentex Development Co is expected to generate 0.82 times more return on investment than Eternal Materials. However, Ruentex Development Co is 1.22 times less risky than Eternal Materials. It trades about -0.02 of its potential returns per unit of risk. Eternal Materials Co is currently generating about -0.05 per unit of risk. If you would invest  4,695  in Ruentex Development Co on September 13, 2024 and sell it today you would lose (75.00) from holding Ruentex Development Co or give up 1.6% of portfolio value over 90 days.

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

Ruentex Development Co  vs.  Eternal Materials Co

Ruentex Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ruentex Development Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Ruentex Development is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Eternal Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eternal Materials Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Eternal Materials is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Ruentex Development and Eternal Materials

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

The idea behind Ruentex Development Co and Eternal Materials Co 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.