Correlation Between Rainbow Childrens and Bodal Chemicals

Can any of the company-specific risk be diversified away by investing in both Rainbow Childrens and Bodal Chemicals 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 Rainbow Childrens and Bodal Chemicals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rainbow Childrens Medicare and Bodal Chemicals Limited, you can compare the effects of market volatilities on Rainbow Childrens and Bodal Chemicals 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 Rainbow Childrens with a short position of Bodal Chemicals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rainbow Childrens and Bodal Chemicals.

Diversification Opportunities for Rainbow Childrens and Bodal Chemicals

-0.66

Correlation Coefficient

Rainbow Childrens  Bodal Chemicals

Excellent diversification

The 3 months correlation between Rainbow and Bodal is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Rainbow Childrens Medicare and Bodal Chemicals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bodal Chemicals and Rainbow Childrens 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 Rainbow Childrens Medicare are associated (or correlated) with Bodal Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bodal Chemicals has no effect on the direction of Rainbow Childrens i.e., Rainbow Childrens and Bodal Chemicals go up and down completely randomly.

Pair Corralation between Rainbow Childrens and Bodal Chemicals

Assuming the 90 days trading horizon Rainbow Childrens Medicare is expected to generate 1.22 times more return on investment than Bodal Chemicals. However, Rainbow Childrens is 1.22 times more volatile than Bodal Chemicals Limited. It trades about 0.07 of its potential returns per unit of risk. Bodal Chemicals Limited is currently generating about -0.11 per unit of risk. If you would invest  141,120  in Rainbow Childrens Medicare on September 26, 2024 and sell it today you would earn a total of  12,730  from holding Rainbow Childrens Medicare or generate 9.02% return on investment over 90 days.

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

Rainbow Childrens Medicare  vs.  Bodal Chemicals Limited

Rainbow Childrens

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rainbow Childrens Medicare are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental drivers, Rainbow Childrens may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Bodal Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bodal Chemicals Limited 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 technical indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Rainbow Childrens and Bodal Chemicals

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

The idea behind Rainbow Childrens Medicare and Bodal Chemicals Limited 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.