Correlation Between City Union and Rico Auto

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

By analyzing existing cross correlation between City Union Bank and Rico Auto Industries, you can compare the effects of market volatilities on City Union and Rico Auto 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 City Union with a short position of Rico Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of City Union and Rico Auto.

Diversification Opportunities for City Union and Rico Auto

-0.6

Correlation Coefficient

City Union  Rico Auto

Excellent diversification

The 3 months correlation between City and Rico is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding City Union Bank and Rico Auto Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rico Auto Industries and City Union 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 City Union Bank are associated (or correlated) with Rico Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rico Auto Industries has no effect on the direction of City Union i.e., City Union and Rico Auto go up and down completely randomly.

Pair Corralation between City Union and Rico Auto

Assuming the 90 days trading horizon City Union Bank is expected to under-perform the Rico Auto. But the stock apears to be less risky and, when comparing its historical volatility, City Union Bank is 4.03 times less risky than Rico Auto. The stock trades about -0.2 of its potential returns per unit of risk. The Rico Auto Industries is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,460  in Rico Auto Industries on October 7, 2024 and sell it today you would earn a total of  284.00  from holding Rico Auto Industries or generate 3.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

City Union Bank  vs.  Rico Auto Industries

City Union Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in City Union Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, City Union exhibited solid returns over the last few months and may actually be approaching a breakup point.

Rico Auto Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with City Union and Rico Auto

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

The idea behind City Union Bank and Rico Auto Industries 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..