Correlation Between Rico Auto and BAG Films

Can any of the company-specific risk be diversified away by investing in both Rico Auto and BAG Films 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 Rico Auto and BAG Films into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rico Auto Industries and BAG Films and, you can compare the effects of market volatilities on Rico Auto and BAG Films 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 Rico Auto with a short position of BAG Films. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rico Auto and BAG Films.

Diversification Opportunities for Rico Auto and BAG Films

0.61

Correlation Coefficient

Rico Auto  BAG Films

Poor diversification

The 3 months correlation between Rico and BAG is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Rico Auto Industries and BAG Films and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAG Films and Rico Auto 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 Rico Auto Industries are associated (or correlated) with BAG Films. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAG Films has no effect on the direction of Rico Auto i.e., Rico Auto and BAG Films go up and down completely randomly.

Pair Corralation between Rico Auto and BAG Films

Assuming the 90 days trading horizon Rico Auto Industries is expected to under-perform the BAG Films. But the stock apears to be less risky and, when comparing its historical volatility, Rico Auto Industries is 1.77 times less risky than BAG Films. The stock trades about -0.2 of its potential returns per unit of risk. The BAG Films and is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,037  in BAG Films and on September 23, 2024 and sell it today you would earn a total of  118.00  from holding BAG Films and or generate 11.38% return on investment over 90 days.

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

Rico Auto Industries  vs.  BAG Films and

Rico Auto Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rico Auto Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

BAG Films

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BAG Films and are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, BAG Films displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rico Auto and BAG Films

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

The idea behind Rico Auto Industries and BAG Films 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 Transaction History module to view history of all your transactions and understand their impact on performance.