Correlation Between COSMO FIRST and REC

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

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

Diversification Opportunities for COSMO FIRST and REC

0.25

Correlation Coefficient

COSMO FIRST  REC

Modest diversification

The 3 months correlation between COSMO and REC is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding COSMO FIRST LIMITED and REC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REC Limited and COSMO FIRST 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 COSMO FIRST LIMITED are associated (or correlated) with REC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REC Limited has no effect on the direction of COSMO FIRST i.e., COSMO FIRST and REC go up and down completely randomly.

Pair Corralation between COSMO FIRST and REC

Assuming the 90 days trading horizon COSMO FIRST is expected to generate 4.8 times less return on investment than REC. But when comparing it to its historical volatility, COSMO FIRST LIMITED is 1.12 times less risky than REC. It trades about 0.03 of its potential returns per unit of risk. REC Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  11,075  in REC Limited on September 26, 2024 and sell it today you would earn a total of  39,665  from holding REC Limited or generate 358.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.59%
Values	Daily Returns

COSMO FIRST LIMITED  vs.  REC Limited

COSMO FIRST LIMITED

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COSMO FIRST LIMITED are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, COSMO FIRST demonstrated solid returns over the last few months and may actually be approaching a breakup point.

REC Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with COSMO FIRST and REC

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

The idea behind COSMO FIRST LIMITED and REC Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.