Correlation Between RB Food and City Sports

Can any of the company-specific risk be diversified away by investing in both RB Food and City Sports 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 RB Food and City Sports into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RB Food Supply and City Sports and, you can compare the effects of market volatilities on RB Food and City Sports 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 RB Food with a short position of City Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of RB Food and City Sports.

Diversification Opportunities for RB Food and City Sports

0.24

Correlation Coefficient

RB Food  City Sports

Modest diversification

The 3 months correlation between RBF and City is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding RB Food Supply and City Sports and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Sports and RB Food 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 RB Food Supply are associated (or correlated) with City Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Sports has no effect on the direction of RB Food i.e., RB Food and City Sports go up and down completely randomly.

Pair Corralation between RB Food and City Sports

Assuming the 90 days trading horizon RB Food Supply is expected to generate 8.67 times more return on investment than City Sports. However, RB Food is 8.67 times more volatile than City Sports and. It trades about 0.15 of its potential returns per unit of risk. City Sports and is currently generating about 0.99 per unit of risk. If you would invest  590.00  in RB Food Supply on September 24, 2024 and sell it today you would earn a total of  55.00  from holding RB Food Supply or generate 9.32% return on investment over 90 days.

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

RB Food Supply  vs.  City Sports and

RB Food Supply

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RB Food Supply has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, RB Food is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

City Sports

Risk-Adjusted Performance

36 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in City Sports and are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, City Sports disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RB Food and City Sports

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

The idea behind RB Food Supply and City Sports and 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.