Correlation Between RENTOKIL INITIAL and Transcontinental

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

By analyzing existing cross correlation between RENTOKIL INITIAL ADR5 and Transcontinental, you can compare the effects of market volatilities on RENTOKIL INITIAL and Transcontinental 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 Transcontinental. Check out your portfolio center. Please also check ongoing floating volatility patterns of RENTOKIL INITIAL and Transcontinental.

Diversification Opportunities for RENTOKIL INITIAL and Transcontinental

0.23

Correlation Coefficient

RENTOKIL INITIAL  Transcontinental

Modest diversification

The 3 months correlation between RENTOKIL and Transcontinental is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding RENTOKIL INITIAL ADR5 and Transcontinental in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transcontinental 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 ADR5 are associated (or correlated) with Transcontinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transcontinental has no effect on the direction of RENTOKIL INITIAL i.e., RENTOKIL INITIAL and Transcontinental go up and down completely randomly.

Pair Corralation between RENTOKIL INITIAL and Transcontinental

Assuming the 90 days horizon RENTOKIL INITIAL ADR5 is expected to generate 2.48 times more return on investment than Transcontinental. However, RENTOKIL INITIAL is 2.48 times more volatile than Transcontinental. It trades about 0.07 of its potential returns per unit of risk. Transcontinental is currently generating about 0.12 per unit of risk. If you would invest  2,140  in RENTOKIL INITIAL ADR5 on September 23, 2024 and sell it today you would earn a total of  240.00  from holding RENTOKIL INITIAL ADR5 or generate 11.21% return on investment over 90 days.

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

RENTOKIL INITIAL ADR5  vs.  Transcontinental

RENTOKIL INITIAL ADR5

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RENTOKIL INITIAL ADR5 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, RENTOKIL INITIAL reported solid returns over the last few months and may actually be approaching a breakup point.

Transcontinental

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transcontinental are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Transcontinental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with RENTOKIL INITIAL and Transcontinental

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

The idea behind RENTOKIL INITIAL ADR5 and Transcontinental 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.