Correlation Between Global Payments and Rentokil Initial

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

By analyzing existing cross correlation between Global Payments and Rentokil Initial plc, you can compare the effects of market volatilities on Global Payments and Rentokil Initial 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 Global Payments with a short position of Rentokil Initial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global Payments and Rentokil Initial.

Diversification Opportunities for Global Payments and Rentokil Initial

0.53

Correlation Coefficient

Global Payments  Rentokil Initial

Very weak diversification

The 3 months correlation between Global and Rentokil is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Global Payments and Rentokil Initial plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rentokil Initial plc and Global Payments 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 Global Payments are associated (or correlated) with Rentokil Initial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rentokil Initial plc has no effect on the direction of Global Payments i.e., Global Payments and Rentokil Initial go up and down completely randomly.

Pair Corralation between Global Payments and Rentokil Initial

Considering the 90-day investment horizon Global Payments is expected to generate 1.5 times less return on investment than Rentokil Initial. But when comparing it to its historical volatility, Global Payments is 1.77 times less risky than Rentokil Initial. It trades about 0.18 of its potential returns per unit of risk. Rentokil Initial plc is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  412.00  in Rentokil Initial plc on September 13, 2024 and sell it today you would earn a total of  81.00  from holding Rentokil Initial plc or generate 19.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.67%
Values	Daily Returns

Global Payments  vs.  Rentokil Initial plc

Global Payments

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Payments are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Global Payments may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rentokil Initial plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rentokil Initial plc 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 forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Global Payments and Rentokil Initial

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

The idea behind Global Payments and Rentokil Initial plc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.