Correlation Between RPBio and National Plastic

Can any of the company-specific risk be diversified away by investing in both RPBio and National Plastic 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 RPBio and National Plastic into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RPBio Inc and National Plastic Co, you can compare the effects of market volatilities on RPBio and National Plastic 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 RPBio with a short position of National Plastic. Check out your portfolio center. Please also check ongoing floating volatility patterns of RPBio and National Plastic.

Diversification Opportunities for RPBio and National Plastic

0.79

Correlation Coefficient

RPBio  National Plastic

Poor diversification

The 3 months correlation between RPBio and National is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding RPBio Inc and National Plastic Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Plastic and RPBio 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 RPBio Inc are associated (or correlated) with National Plastic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Plastic has no effect on the direction of RPBio i.e., RPBio and National Plastic go up and down completely randomly.

Pair Corralation between RPBio and National Plastic

Assuming the 90 days trading horizon RPBio Inc is expected to under-perform the National Plastic. In addition to that, RPBio is 2.12 times more volatile than National Plastic Co. It trades about -0.08 of its total potential returns per unit of risk. National Plastic Co is currently generating about -0.01 per unit of volatility. If you would invest  263,000  in National Plastic Co on October 9, 2024 and sell it today you would lose (2,000) from holding National Plastic Co or give up 0.76% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

RPBio Inc  vs.  National Plastic Co

RPBio Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RPBio Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

National Plastic

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Plastic Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, National Plastic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with RPBio and National Plastic

The main advantage of trading using opposite RPBio and National Plastic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RPBio position performs unexpectedly, National Plastic 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 National Plastic will offset losses from the drop in National Plastic's long position.

The idea behind RPBio Inc and National Plastic Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.