Correlation Between Morgan Advanced and Reckitt Benckiser

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

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

Diversification Opportunities for Morgan Advanced and Reckitt Benckiser

-0.6

Correlation Coefficient

Morgan Advanced  Reckitt Benckiser

Excellent diversification

The 3 months correlation between Morgan and Reckitt is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Morgan Advanced Materials and Reckitt Benckiser Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reckitt Benckiser and Morgan Advanced 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 Morgan Advanced Materials are associated (or correlated) with Reckitt Benckiser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reckitt Benckiser has no effect on the direction of Morgan Advanced i.e., Morgan Advanced and Reckitt Benckiser go up and down completely randomly.

Pair Corralation between Morgan Advanced and Reckitt Benckiser

Assuming the 90 days trading horizon Morgan Advanced Materials is expected to under-perform the Reckitt Benckiser. But the stock apears to be less risky and, when comparing its historical volatility, Morgan Advanced Materials is 1.06 times less risky than Reckitt Benckiser. The stock trades about -0.06 of its potential returns per unit of risk. The Reckitt Benckiser Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  459,800  in Reckitt Benckiser Group on September 13, 2024 and sell it today you would earn a total of  23,700  from holding Reckitt Benckiser Group or generate 5.15% return on investment over 90 days.

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

Morgan Advanced Materials  vs.  Reckitt Benckiser Group

Morgan Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Morgan Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Morgan Advanced is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Reckitt Benckiser

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reckitt Benckiser Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Reckitt Benckiser is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Morgan Advanced and Reckitt Benckiser

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

The idea behind Morgan Advanced Materials and Reckitt Benckiser 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.