Correlation Between Rentokil Initial and Global Payments

Can any of the company-specific risk be diversified away by investing in both Rentokil Initial and Global Payments 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 Rentokil Initial and Global Payments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rentokil Initial plc and Global Payments, you can compare the effects of market volatilities on Rentokil Initial and Global Payments 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 Rentokil Initial with a short position of Global Payments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rentokil Initial and Global Payments.

Diversification Opportunities for Rentokil Initial and Global Payments

0.71

Correlation Coefficient

Rentokil Initial  Global Payments

Poor diversification

The 3 months correlation between Rentokil and Global is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Rentokil Initial plc and Global Payments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Payments and Rentokil Initial 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 Rentokil Initial plc are associated (or correlated) with Global Payments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Payments has no effect on the direction of Rentokil Initial i.e., Rentokil Initial and Global Payments go up and down completely randomly.

Pair Corralation between Rentokil Initial and Global Payments

Assuming the 90 days horizon Rentokil Initial plc is expected to under-perform the Global Payments. In addition to that, Rentokil Initial is 1.63 times more volatile than Global Payments. It trades about -0.01 of its total potential returns per unit of risk. Global Payments is currently generating about 0.08 per unit of volatility. If you would invest  9,523  in Global Payments on September 23, 2024 and sell it today you would earn a total of  1,680  from holding Global Payments or generate 17.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.64%
Values	Daily Returns

Rentokil Initial plc  vs.  Global Payments

Rentokil Initial plc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rentokil Initial plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward indicators, Rentokil Initial reported solid returns over the last few months and may actually be approaching a breakup point.

Global Payments

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Global Payments are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Global Payments is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Rentokil Initial and Global Payments

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

The idea behind Rentokil Initial plc and Global Payments 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.