Correlation Between Standard Bank and RCL Foods
Can any of the company-specific risk be diversified away by investing in both Standard Bank 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 Standard Bank and RCL Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Standard Bank Group and RCL Foods, you can compare the effects of market volatilities on Standard Bank 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 Standard Bank with a short position of RCL Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard Bank and RCL Foods.
Diversification Opportunities for Standard Bank and RCL Foods
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Standard and RCL is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Standard Bank Group and RCL Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCL Foods and Standard Bank 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 Standard Bank Group 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 Standard Bank i.e., Standard Bank and RCL Foods go up and down completely randomly.
Pair Corralation between Standard Bank and RCL Foods
Assuming the 90 days trading horizon Standard Bank is expected to generate 1.5 times less return on investment than RCL Foods. But when comparing it to its historical volatility, Standard Bank Group is 2.79 times less risky than RCL Foods. It trades about 0.02 of its potential returns per unit of risk. RCL Foods is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 100,600 in RCL Foods on August 31, 2024 and sell it today you would lose (8,100) from holding RCL Foods or give up 8.05% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Standard Bank Group vs. RCL Foods
Performance |
| Timeline |
| Standard Bank Group |
| RCL Foods |
Standard Bank and RCL Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Standard Bank and RCL Foods
The main advantage of trading using opposite Standard Bank and RCL Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard Bank 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.| Standard Bank vs. Zeder Investments | Standard Bank vs. Capitec Bank Holdings | Standard Bank vs. Afine Investments | Standard Bank vs. Brimstone Investment |
| RCL Foods vs. Afine Investments | RCL Foods vs. Safari Investments RSA | RCL Foods vs. Reinet Investments SCA | RCL Foods vs. Deneb Investments |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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