Correlation Between Blue Label and RCL Foods
Can any of the company-specific risk be diversified away by investing in both Blue Label 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 Blue Label and RCL Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Blue Label Telecoms and RCL Foods, you can compare the effects of market volatilities on Blue Label 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 Blue Label with a short position of RCL Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Label and RCL Foods.
Diversification Opportunities for Blue Label and RCL Foods
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Blue and RCL is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Blue Label Telecoms and RCL Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCL Foods and Blue Label 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 Blue Label Telecoms 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 Blue Label i.e., Blue Label and RCL Foods go up and down completely randomly.
Pair Corralation between Blue Label and RCL Foods
Assuming the 90 days trading horizon Blue Label Telecoms is expected to generate 0.72 times more return on investment than RCL Foods. However, Blue Label Telecoms is 1.38 times less risky than RCL Foods. It trades about 0.05 of its potential returns per unit of risk. RCL Foods is currently generating about 0.01 per unit of risk. If you would invest 38,200 in Blue Label Telecoms on August 27, 2024 and sell it today you would earn a total of 13,700 from holding Blue Label Telecoms or generate 35.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Blue Label Telecoms vs. RCL Foods
Performance |
| Timeline |
| Blue Label Telecoms |
| RCL Foods |
Blue Label and RCL Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Blue Label and RCL Foods
The main advantage of trading using opposite Blue Label and RCL Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Label 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 Blue Label Telecoms 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.| RCL Foods vs. Standard Bank Group | RCL Foods vs. Ascendis Health | RCL Foods vs. City Lodge Hotels | RCL Foods vs. Advtech |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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