Correlation Between RCL Foods and Netcare
Can any of the company-specific risk be diversified away by investing in both RCL Foods and Netcare 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 RCL Foods and Netcare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RCL Foods and Netcare, you can compare the effects of market volatilities on RCL Foods and Netcare 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 RCL Foods with a short position of Netcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of RCL Foods and Netcare.
Diversification Opportunities for RCL Foods and Netcare
Very weak diversification
The 3 months correlation between RCL and Netcare is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding RCL Foods and Netcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netcare and RCL Foods 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 RCL Foods are associated (or correlated) with Netcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netcare has no effect on the direction of RCL Foods i.e., RCL Foods and Netcare go up and down completely randomly.
Pair Corralation between RCL Foods and Netcare
Assuming the 90 days trading horizon RCL Foods is expected to generate 2.2 times more return on investment than Netcare. However, RCL Foods is 2.2 times more volatile than Netcare. It trades about 0.01 of its potential returns per unit of risk. Netcare is currently generating about 0.02 per unit of risk. If you would invest 100,100 in RCL Foods on September 14, 2024 and sell it today you would lose (1,800) from holding RCL Foods or give up 1.8% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
RCL Foods vs. Netcare
Performance |
| Timeline |
| RCL Foods |
| Netcare |
RCL Foods and Netcare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RCL Foods and Netcare
The main advantage of trading using opposite RCL Foods and Netcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RCL Foods position performs unexpectedly, Netcare 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 Netcare will offset losses from the drop in Netcare's long position.| RCL Foods vs. Blue Label Telecoms | RCL Foods vs. African Media Entertainment | RCL Foods vs. Bytes Technology | RCL Foods vs. Advtech |
| Netcare vs. HomeChoice Investments | Netcare vs. RCL Foods | Netcare vs. Allied Electronics | Netcare vs. Safari Investments RSA |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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