Correlation Between Schouw and RTX AS
Can any of the company-specific risk be diversified away by investing in both Schouw and RTX AS 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 Schouw and RTX AS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Schouw Co and RTX AS, you can compare the effects of market volatilities on Schouw and RTX AS 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 Schouw with a short position of RTX AS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schouw and RTX AS.
Diversification Opportunities for Schouw and RTX AS
Poor diversification
The 3 months correlation between Schouw and RTX is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Schouw Co and RTX AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RTX AS and Schouw 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 Schouw Co are associated (or correlated) with RTX AS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RTX AS has no effect on the direction of Schouw i.e., Schouw and RTX AS go up and down completely randomly.
Pair Corralation between Schouw and RTX AS
Assuming the 90 days trading horizon Schouw is expected to generate 32.12 times less return on investment than RTX AS. But when comparing it to its historical volatility, Schouw Co is 3.3 times less risky than RTX AS. It trades about 0.03 of its potential returns per unit of risk. RTX AS is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 5,680 in RTX AS on October 26, 2024 and sell it today you would earn a total of 820.00 from holding RTX AS or generate 14.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Schouw Co vs. RTX AS
Performance |
| Timeline |
| Schouw |
| RTX AS |
Schouw and RTX AS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Schouw and RTX AS
The main advantage of trading using opposite Schouw and RTX AS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Schouw position performs unexpectedly, RTX AS 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 RTX AS will offset losses from the drop in RTX AS's long position.The idea behind Schouw Co and RTX AS 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.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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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