Correlation Between Jacobs Solutions and Rentokil Initial

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

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

Diversification Opportunities for Jacobs Solutions and Rentokil Initial

-0.43

Correlation Coefficient

Jacobs Solutions  Rentokil Initial

Very good diversification

The 3 months correlation between Jacobs and Rentokil is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Jacobs Solutions 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 Jacobs Solutions 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 Jacobs Solutions 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 Jacobs Solutions i.e., Jacobs Solutions and Rentokil Initial go up and down completely randomly.

Pair Corralation between Jacobs Solutions and Rentokil Initial

Taking into account the 90-day investment horizon Jacobs Solutions is expected to generate 0.49 times more return on investment than Rentokil Initial. However, Jacobs Solutions is 2.03 times less risky than Rentokil Initial. It trades about 0.15 of its potential returns per unit of risk. Rentokil Initial PLC is currently generating about -0.09 per unit of risk. If you would invest  12,261  in Jacobs Solutions on September 1, 2024 and sell it today you would earn a total of  1,862  from holding Jacobs Solutions or generate 15.19% return on investment over 90 days.

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

Jacobs Solutions  vs.  Rentokil Initial PLC

Jacobs Solutions

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Jacobs Solutions are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking indicators, Jacobs Solutions revealed solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Jacobs Solutions and Rentokil Initial

The main advantage of trading using opposite Jacobs Solutions and Rentokil Initial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Jacobs Solutions 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 Jacobs Solutions 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.

Check out your portfolio center.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.