Correlation Between Reacap Financial and Natural Gas

Can any of the company-specific risk be diversified away by investing in both Reacap Financial and Natural Gas 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 Reacap Financial and Natural Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Reacap Financial Investments and Natural Gas Mining, you can compare the effects of market volatilities on Reacap Financial and Natural Gas 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 Reacap Financial with a short position of Natural Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reacap Financial and Natural Gas.

Diversification Opportunities for Reacap Financial and Natural Gas

0.8

Correlation Coefficient

Reacap Financial  Natural Gas

Very poor diversification

The 3 months correlation between Reacap and Natural is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Reacap Financial Investments and Natural Gas Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Natural Gas Mining and Reacap Financial 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 Reacap Financial Investments are associated (or correlated) with Natural Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Natural Gas Mining has no effect on the direction of Reacap Financial i.e., Reacap Financial and Natural Gas go up and down completely randomly.

Pair Corralation between Reacap Financial and Natural Gas

Assuming the 90 days trading horizon Reacap Financial is expected to generate 1.6 times less return on investment than Natural Gas. But when comparing it to its historical volatility, Reacap Financial Investments is 1.64 times less risky than Natural Gas. It trades about 0.13 of its potential returns per unit of risk. Natural Gas Mining is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,050  in Natural Gas Mining on September 12, 2024 and sell it today you would earn a total of  1,050  from holding Natural Gas Mining or generate 34.43% return on investment over 90 days.

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

Reacap Financial Investments  vs.  Natural Gas Mining

Reacap Financial Inv

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reacap Financial Investments are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Reacap Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Natural Gas Mining

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Natural Gas Mining are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Natural Gas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reacap Financial and Natural Gas

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

The idea behind Reacap Financial Investments and Natural Gas Mining 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.