Correlation Between Capitol Health and Rea

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

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

Diversification Opportunities for Capitol Health and Rea

0.67

Correlation Coefficient

Capitol Health  Rea

Poor diversification

The 3 months correlation between Capitol and Rea is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Capitol Health and Rea Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rea Group and Capitol Health 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 Capitol Health are associated (or correlated) with Rea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rea Group has no effect on the direction of Capitol Health i.e., Capitol Health and Rea go up and down completely randomly.

Pair Corralation between Capitol Health and Rea

Assuming the 90 days trading horizon Capitol Health is expected to generate 1.14 times less return on investment than Rea. In addition to that, Capitol Health is 1.83 times more volatile than Rea Group. It trades about 0.12 of its total potential returns per unit of risk. Rea Group is currently generating about 0.25 per unit of volatility. If you would invest  20,551  in Rea Group on September 5, 2024 and sell it today you would earn a total of  4,816  from holding Rea Group or generate 23.43% return on investment over 90 days.

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

Capitol Health  vs.  Rea Group

Capitol Health

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capitol Health are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking indicators, Capitol Health unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rea Group

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rea Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rea unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capitol Health and Rea

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

The idea behind Capitol Health and Rea 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.