Correlation Between RCL Foods and African Rainbow
Can any of the company-specific risk be diversified away by investing in both RCL Foods and African Rainbow 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 RCL Foods and African Rainbow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RCL Foods and African Rainbow Capital, you can compare the effects of market volatilities on RCL Foods and African Rainbow 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 RCL Foods with a short position of African Rainbow. Check out your portfolio center. Please also check ongoing floating volatility patterns of RCL Foods and African Rainbow.
Diversification Opportunities for RCL Foods and African Rainbow
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between RCL and African is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding RCL Foods and African Rainbow Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Rainbow Capital and RCL Foods 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 RCL Foods are associated (or correlated) with African Rainbow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of African Rainbow Capital has no effect on the direction of RCL Foods i.e., RCL Foods and African Rainbow go up and down completely randomly.
Pair Corralation between RCL Foods and African Rainbow
Assuming the 90 days trading horizon RCL Foods is expected to generate 1.18 times more return on investment than African Rainbow. However, RCL Foods is 1.18 times more volatile than African Rainbow Capital. It trades about 0.13 of its potential returns per unit of risk. African Rainbow Capital is currently generating about 0.05 per unit of risk. If you would invest 85,000 in RCL Foods on September 14, 2024 and sell it today you would earn a total of 13,300 from holding RCL Foods or generate 15.65% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
RCL Foods vs. African Rainbow Capital
Performance |
Timeline |
RCL Foods |
African Rainbow Capital |
RCL Foods and African Rainbow Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with RCL Foods and African Rainbow
The main advantage of trading using opposite RCL Foods and African Rainbow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RCL Foods position performs unexpectedly, African Rainbow 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 African Rainbow will offset losses from the drop in African Rainbow's long position.RCL Foods vs. Blue Label Telecoms | RCL Foods vs. African Media Entertainment | RCL Foods vs. Bytes Technology | RCL Foods vs. Advtech |
African Rainbow vs. Advtech | African Rainbow vs. Ascendis Health | African Rainbow vs. ABSA Bank Limited | African Rainbow vs. RCL Foods |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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