Correlation Between Kap Industrial and RCL Foods

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

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

Diversification Opportunities for Kap Industrial and RCL Foods

-0.03

Correlation Coefficient

Kap Industrial  RCL Foods

Good diversification

The 3 months correlation between Kap and RCL is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Kap Industrial Holdings and RCL Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCL Foods and Kap Industrial 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 Kap Industrial Holdings are associated (or correlated) with RCL Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCL Foods has no effect on the direction of Kap Industrial i.e., Kap Industrial and RCL Foods go up and down completely randomly.

Pair Corralation between Kap Industrial and RCL Foods

Assuming the 90 days trading horizon Kap Industrial Holdings is expected to under-perform the RCL Foods. But the stock apears to be less risky and, when comparing its historical volatility, Kap Industrial Holdings is 1.18 times less risky than RCL Foods. The stock trades about -0.03 of its potential returns per unit of risk. The RCL Foods is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  91,700  in RCL Foods on September 3, 2024 and sell it today you would lose (700.00) from holding RCL Foods or give up 0.76% of portfolio value over 90 days.

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

Kap Industrial Holdings  vs.  RCL Foods

Kap Industrial Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kap Industrial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Kap Industrial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

RCL Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RCL Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, RCL Foods is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Kap Industrial and RCL Foods

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

The idea behind Kap Industrial Holdings and RCL Foods 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.