Correlation Between Eastern and RCI Hospitality

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

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

Diversification Opportunities for Eastern and RCI Hospitality

-0.78

Correlation Coefficient

Eastern  RCI Hospitality

Pay attention - limited upside

The 3 months correlation between Eastern and RCI is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and RCI Hospitality Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCI Hospitality Holdings and Eastern 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 Eastern Co are associated (or correlated) with RCI Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCI Hospitality Holdings has no effect on the direction of Eastern i.e., Eastern and RCI Hospitality go up and down completely randomly.

Pair Corralation between Eastern and RCI Hospitality

Considering the 90-day investment horizon Eastern Co is expected to under-perform the RCI Hospitality. But the stock apears to be less risky and, when comparing its historical volatility, Eastern Co is 1.02 times less risky than RCI Hospitality. The stock trades about -0.1 of its potential returns per unit of risk. The RCI Hospitality Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,460  in RCI Hospitality Holdings on September 27, 2024 and sell it today you would earn a total of  1,383  from holding RCI Hospitality Holdings or generate 31.01% return on investment over 90 days.

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

Eastern Co  vs.  RCI Hospitality Holdings

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's primary indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

RCI Hospitality Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RCI Hospitality Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, RCI Hospitality disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eastern and RCI Hospitality

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

The idea behind Eastern Co and RCI Hospitality Holdings 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.