Correlation Between ARISTOCRAT LEISURE and RCM TECHNOLOGIES
Can any of the company-specific risk be diversified away by investing in both ARISTOCRAT LEISURE and RCM TECHNOLOGIES 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 ARISTOCRAT LEISURE and RCM TECHNOLOGIES into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ARISTOCRAT LEISURE and RCM TECHNOLOGIES, you can compare the effects of market volatilities on ARISTOCRAT LEISURE and RCM TECHNOLOGIES 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 ARISTOCRAT LEISURE with a short position of RCM TECHNOLOGIES. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARISTOCRAT LEISURE and RCM TECHNOLOGIES.
Diversification Opportunities for ARISTOCRAT LEISURE and RCM TECHNOLOGIES
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between ARISTOCRAT and RCM is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding ARISTOCRAT LEISURE and RCM TECHNOLOGIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCM TECHNOLOGIES and ARISTOCRAT LEISURE 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 ARISTOCRAT LEISURE are associated (or correlated) with RCM TECHNOLOGIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCM TECHNOLOGIES has no effect on the direction of ARISTOCRAT LEISURE i.e., ARISTOCRAT LEISURE and RCM TECHNOLOGIES go up and down completely randomly.
Pair Corralation between ARISTOCRAT LEISURE and RCM TECHNOLOGIES
Assuming the 90 days trading horizon ARISTOCRAT LEISURE is expected to generate 0.34 times more return on investment than RCM TECHNOLOGIES. However, ARISTOCRAT LEISURE is 2.93 times less risky than RCM TECHNOLOGIES. It trades about 0.15 of its potential returns per unit of risk. RCM TECHNOLOGIES is currently generating about 0.03 per unit of risk. If you would invest 2,331 in ARISTOCRAT LEISURE on October 16, 2024 and sell it today you would earn a total of 1,929 from holding ARISTOCRAT LEISURE or generate 82.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.48% |
| Values | Daily Returns |
ARISTOCRAT LEISURE vs. RCM TECHNOLOGIES
Performance |
| Timeline |
| ARISTOCRAT LEISURE |
| RCM TECHNOLOGIES |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
OK
ARISTOCRAT LEISURE and RCM TECHNOLOGIES Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ARISTOCRAT LEISURE and RCM TECHNOLOGIES
The main advantage of trading using opposite ARISTOCRAT LEISURE and RCM TECHNOLOGIES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARISTOCRAT LEISURE position performs unexpectedly, RCM TECHNOLOGIES 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 RCM TECHNOLOGIES will offset losses from the drop in RCM TECHNOLOGIES's long position.The idea behind ARISTOCRAT LEISURE and RCM TECHNOLOGIES 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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Check out your portfolio center.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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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