Correlation Between RCABS and World Oil

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

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

Diversification Opportunities for RCABS and World Oil

0.74

Correlation Coefficient

RCABS  World Oil

Poor diversification

The 3 months correlation between RCABS and World is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding RCABS Inc and World Oil Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Oil Group and RCABS 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 RCABS Inc are associated (or correlated) with World Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Oil Group has no effect on the direction of RCABS i.e., RCABS and World Oil go up and down completely randomly.

Pair Corralation between RCABS and World Oil

Given the investment horizon of 90 days RCABS Inc is expected to generate 1.6 times more return on investment than World Oil. However, RCABS is 1.6 times more volatile than World Oil Group. It trades about 0.0 of its potential returns per unit of risk. World Oil Group is currently generating about -0.15 per unit of risk. If you would invest  0.08  in RCABS Inc on December 27, 2024 and sell it today you would lose (0.03) from holding RCABS Inc or give up 37.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

RCABS Inc  vs.  World Oil Group

RCABS Inc

Risk-Adjusted Performance

Very Weak

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

World Oil Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days World Oil Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with RCABS and World Oil

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

The idea behind RCABS Inc and World Oil Group 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.

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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.