Correlation Between Iron Road and Rea
Can any of the company-specific risk be diversified away by investing in both Iron Road and Rea 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 Iron Road and Rea into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iron Road and Rea Group, you can compare the effects of market volatilities on Iron Road and Rea 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 Iron Road with a short position of Rea. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iron Road and Rea.
Diversification Opportunities for Iron Road and Rea
Average diversification
The 3 months correlation between Iron and Rea is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road and Rea Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rea Group and Iron Road 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 Iron Road are associated (or correlated) with Rea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rea Group has no effect on the direction of Iron Road i.e., Iron Road and Rea go up and down completely randomly.
Pair Corralation between Iron Road and Rea
Assuming the 90 days trading horizon Iron Road is expected to under-perform the Rea. In addition to that, Iron Road is 1.61 times more volatile than Rea Group. It trades about -0.25 of its total potential returns per unit of risk. Rea Group is currently generating about 0.16 per unit of volatility. If you would invest 23,501 in Rea Group on October 31, 2024 and sell it today you would earn a total of 1,005 from holding Rea Group or generate 4.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Iron Road vs. Rea Group
Performance |
| Timeline |
| Iron Road |
| Rea Group |
Iron Road and Rea Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iron Road and Rea
The main advantage of trading using opposite Iron Road and Rea positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iron Road position performs unexpectedly, Rea 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 Rea will offset losses from the drop in Rea's long position.| Iron Road vs. Health and Plant | Iron Road vs. Fisher Paykel Healthcare | Iron Road vs. Phoslock Environmental Technologies | Iron Road vs. EVE Health Group |
| Rea vs. Hansen Technologies | Rea vs. Ras Technology Holdings | Rea vs. Maggie Beer Holdings | Rea vs. Torque Metals |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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