Correlation Between Reinet Investments and African Rainbow

Can any of the company-specific risk be diversified away by investing in both Reinet Investments 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 Reinet Investments and African Rainbow into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Reinet Investments SCA and African Rainbow Minerals, you can compare the effects of market volatilities on Reinet Investments 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 Reinet Investments with a short position of African Rainbow. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reinet Investments and African Rainbow.

Diversification Opportunities for Reinet Investments and African Rainbow

-0.26

Correlation Coefficient

Reinet Investments  African Rainbow

Very good diversification

The 3 months correlation between Reinet and African is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Reinet Investments SCA and African Rainbow Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on African Rainbow Minerals and Reinet Investments 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 Reinet Investments SCA 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 Minerals has no effect on the direction of Reinet Investments i.e., Reinet Investments and African Rainbow go up and down completely randomly.

Pair Corralation between Reinet Investments and African Rainbow

Assuming the 90 days trading horizon Reinet Investments SCA is expected to generate 0.52 times more return on investment than African Rainbow. However, Reinet Investments SCA is 1.92 times less risky than African Rainbow. It trades about -0.01 of its potential returns per unit of risk. African Rainbow Minerals is currently generating about -0.07 per unit of risk. If you would invest  4,688,900  in Reinet Investments SCA on September 16, 2024 and sell it today you would lose (58,900) from holding Reinet Investments SCA or give up 1.26% of portfolio value over 90 days.

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

Reinet Investments SCA  vs.  African Rainbow Minerals

Reinet Investments SCA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reinet Investments SCA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Reinet Investments is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

African Rainbow Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days African Rainbow Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Reinet Investments and African Rainbow

The main advantage of trading using opposite Reinet Investments and African Rainbow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reinet Investments 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.

The idea behind Reinet Investments SCA and African Rainbow Minerals 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.