Correlation Between Reckitt Benckiser and Essity AB

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

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

Diversification Opportunities for Reckitt Benckiser and Essity AB

-0.39

Correlation Coefficient

Reckitt Benckiser  Essity AB

Very good diversification

The 3 months correlation between Reckitt and Essity is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Reckitt Benckiser Group and Essity AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essity AB and Reckitt Benckiser 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 Reckitt Benckiser Group are associated (or correlated) with Essity AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essity AB has no effect on the direction of Reckitt Benckiser i.e., Reckitt Benckiser and Essity AB go up and down completely randomly.

Pair Corralation between Reckitt Benckiser and Essity AB

Assuming the 90 days horizon Reckitt Benckiser is expected to generate 724.33 times less return on investment than Essity AB. But when comparing it to its historical volatility, Reckitt Benckiser Group is 12.3 times less risky than Essity AB. It trades about 0.0 of its potential returns per unit of risk. Essity AB is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,558  in Essity AB on September 5, 2024 and sell it today you would earn a total of  75.00  from holding Essity AB or generate 2.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	71.86%
Values	Daily Returns

Reckitt Benckiser Group  vs.  Essity AB

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 fairly strong essential indicators, Reckitt Benckiser is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Essity AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essity AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Reckitt Benckiser and Essity AB

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

The idea behind Reckitt Benckiser Group and Essity AB 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.