Correlation Between Pollard Banknote and Richards Packaging

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

By analyzing existing cross correlation between Pollard Banknote Limited and Richards Packaging Income, you can compare the effects of market volatilities on Pollard Banknote and Richards Packaging 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 Pollard Banknote with a short position of Richards Packaging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pollard Banknote and Richards Packaging.

Diversification Opportunities for Pollard Banknote and Richards Packaging

0.46

Correlation Coefficient

Pollard Banknote  Richards Packaging

Very weak diversification

The 3 months correlation between Pollard and Richards is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Pollard Banknote Limited and Richards Packaging Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Richards Packaging Income and Pollard Banknote 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 Pollard Banknote Limited are associated (or correlated) with Richards Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Richards Packaging Income has no effect on the direction of Pollard Banknote i.e., Pollard Banknote and Richards Packaging go up and down completely randomly.

Pair Corralation between Pollard Banknote and Richards Packaging

Assuming the 90 days trading horizon Pollard Banknote Limited is expected to generate 2.44 times more return on investment than Richards Packaging. However, Pollard Banknote is 2.44 times more volatile than Richards Packaging Income. It trades about 0.02 of its potential returns per unit of risk. Richards Packaging Income is currently generating about 0.0 per unit of risk. If you would invest  2,495  in Pollard Banknote Limited on September 3, 2024 and sell it today you would earn a total of  30.00  from holding Pollard Banknote Limited or generate 1.2% return on investment over 90 days.

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

Pollard Banknote Limited  vs.  Richards Packaging Income

Pollard Banknote

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pollard Banknote Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, Pollard Banknote is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Richards Packaging Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Richards Packaging Income has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Richards Packaging is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Pollard Banknote and Richards Packaging

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

The idea behind Pollard Banknote Limited and Richards Packaging Income 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.