Correlation Between Body and Rubicon Organics

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

By analyzing existing cross correlation between Body and Mind and Rubicon Organics, you can compare the effects of market volatilities on Body and Rubicon Organics 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 Body with a short position of Rubicon Organics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Body and Rubicon Organics.

Diversification Opportunities for Body and Rubicon Organics

-0.16

Correlation Coefficient

Body  Rubicon Organics

Good diversification

The 3 months correlation between Body and Rubicon is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Body and Mind and Rubicon Organics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rubicon Organics and Body 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 Body and Mind are associated (or correlated) with Rubicon Organics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rubicon Organics has no effect on the direction of Body i.e., Body and Rubicon Organics go up and down completely randomly.

Pair Corralation between Body and Rubicon Organics

Given the investment horizon of 90 days Body and Mind is expected to under-perform the Rubicon Organics. In addition to that, Body is 4.43 times more volatile than Rubicon Organics. It trades about -0.01 of its total potential returns per unit of risk. Rubicon Organics is currently generating about -0.03 per unit of volatility. If you would invest  33.00  in Rubicon Organics on December 2, 2024 and sell it today you would lose (4.00) from holding Rubicon Organics or give up 12.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	77.5%
Values	Daily Returns

Body and Mind  vs.  Rubicon Organics

Body and Mind

Risk-Adjusted Performance

OK

Over the last 90 days Body and Mind has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively fragile primary indicators, Body revealed solid returns over the last few months and may actually be approaching a breakup point.

Rubicon Organics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rubicon Organics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking indicators, Rubicon Organics reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Body and Rubicon Organics

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

The idea behind Body and Mind and Rubicon Organics 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.