Correlation Between Cochlear and Rea Group

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

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

Diversification Opportunities for Cochlear and Rea Group

0.21

Correlation Coefficient

Cochlear  Rea Group

Modest diversification

The 3 months correlation between Cochlear and Rea is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Cochlear and Rea Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rea Group and Cochlear 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 Cochlear are associated (or correlated) with Rea Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rea Group has no effect on the direction of Cochlear i.e., Cochlear and Rea Group go up and down completely randomly.

Pair Corralation between Cochlear and Rea Group

Assuming the 90 days trading horizon Cochlear is expected to under-perform the Rea Group. In addition to that, Cochlear is 1.04 times more volatile than Rea Group. It trades about -0.06 of its total potential returns per unit of risk. Rea Group is currently generating about -0.01 per unit of volatility. If you would invest  23,395  in Rea Group on December 29, 2024 and sell it today you would lose (700.00) from holding Rea Group or give up 2.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Cochlear  vs.  Rea Group

Cochlear

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cochlear has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Rea Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rea Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Rea Group is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cochlear and Rea Group

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

The idea behind Cochlear and Rea 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.