Correlation Between AECI and RCL Foods
Can any of the company-specific risk be diversified away by investing in both AECI and RCL Foods 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 AECI and RCL Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AECI and RCL Foods, you can compare the effects of market volatilities on AECI and RCL Foods 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 AECI with a short position of RCL Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of AECI and RCL Foods.
Diversification Opportunities for AECI and RCL Foods
Very good diversification
The 3 months correlation between AECI and RCL is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding AECI and RCL Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCL Foods and AECI 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 AECI are associated (or correlated) with RCL Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCL Foods has no effect on the direction of AECI i.e., AECI and RCL Foods go up and down completely randomly.
Pair Corralation between AECI and RCL Foods
Assuming the 90 days trading horizon AECI is expected to under-perform the RCL Foods. But the stock apears to be less risky and, when comparing its historical volatility, AECI is 1.13 times less risky than RCL Foods. The stock trades about -0.39 of its potential returns per unit of risk. The RCL Foods is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 91,000 in RCL Foods on September 5, 2024 and sell it today you would earn a total of 1,400 from holding RCL Foods or generate 1.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
AECI vs. RCL Foods
Performance |
| Timeline |
| AECI |
| RCL Foods |
AECI and RCL Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AECI and RCL Foods
The main advantage of trading using opposite AECI and RCL Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AECI position performs unexpectedly, RCL Foods 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 RCL Foods will offset losses from the drop in RCL Foods' long position.The idea behind AECI and RCL Foods 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.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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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