Correlation Between Cal Maine and Rolls-Royce Holdings
Can any of the company-specific risk be diversified away by investing in both Cal Maine and Rolls-Royce Holdings 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 Cal Maine and Rolls-Royce Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Cal Maine Foods and Rolls Royce Holdings plc, you can compare the effects of market volatilities on Cal Maine and Rolls-Royce Holdings 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 Cal Maine with a short position of Rolls-Royce Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cal Maine and Rolls-Royce Holdings.
Diversification Opportunities for Cal Maine and Rolls-Royce Holdings
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Cal and Rolls-Royce is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Cal Maine Foods and Rolls Royce Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings and Cal Maine 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 Cal Maine Foods are associated (or correlated) with Rolls-Royce Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of Cal Maine i.e., Cal Maine and Rolls-Royce Holdings go up and down completely randomly.
Pair Corralation between Cal Maine and Rolls-Royce Holdings
Assuming the 90 days trading horizon Cal Maine Foods is expected to generate 0.58 times more return on investment than Rolls-Royce Holdings. However, Cal Maine Foods is 1.73 times less risky than Rolls-Royce Holdings. It trades about 0.46 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.05 per unit of risk. If you would invest 7,984 in Cal Maine Foods on September 3, 2024 and sell it today you would earn a total of 1,156 from holding Cal Maine Foods or generate 14.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Cal Maine Foods vs. Rolls Royce Holdings plc
Performance |
| Timeline |
| Cal Maine Foods |
| Rolls Royce Holdings |
Cal Maine and Rolls-Royce Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Cal Maine and Rolls-Royce Holdings
The main advantage of trading using opposite Cal Maine and Rolls-Royce Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cal Maine position performs unexpectedly, Rolls-Royce Holdings 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 Rolls-Royce Holdings will offset losses from the drop in Rolls-Royce Holdings' long position.| Cal Maine vs. ADRIATIC METALS LS 013355 | Cal Maine vs. Datang International Power | Cal Maine vs. Science Applications International | Cal Maine vs. Harmony Gold Mining |
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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