Correlation Between Reckitt Benckiser and Shiseido

Can any of the company-specific risk be diversified away by investing in both Reckitt Benckiser and Shiseido 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 Shiseido 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 Shiseido Company, you can compare the effects of market volatilities on Reckitt Benckiser and Shiseido 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 Shiseido. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reckitt Benckiser and Shiseido.

Diversification Opportunities for Reckitt Benckiser and Shiseido

0.01

Correlation Coefficient

Reckitt Benckiser  Shiseido

Significant diversification

The 3 months correlation between Reckitt and Shiseido is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Reckitt Benckiser Group and Shiseido Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shiseido 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 Shiseido. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shiseido has no effect on the direction of Reckitt Benckiser i.e., Reckitt Benckiser and Shiseido go up and down completely randomly.

Pair Corralation between Reckitt Benckiser and Shiseido

Assuming the 90 days horizon Reckitt Benckiser Group is expected to generate 0.69 times more return on investment than Shiseido. However, Reckitt Benckiser Group is 1.46 times less risky than Shiseido. It trades about 0.02 of its potential returns per unit of risk. Shiseido Company is currently generating about -0.17 per unit of risk. If you would invest  1,219  in Reckitt Benckiser Group on September 14, 2024 and sell it today you would earn a total of  14.00  from holding Reckitt Benckiser Group or generate 1.15% return on investment over 90 days.

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

Reckitt Benckiser Group  vs.  Shiseido Company

Reckitt Benckiser

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reckitt Benckiser Group are ranked lower than 1 (%) 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.

Shiseido

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shiseido Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Reckitt Benckiser and Shiseido

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

The idea behind Reckitt Benckiser Group and Shiseido Company 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.