Correlation Between Diamond Estates and Rubicon Organics

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

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

Diversification Opportunities for Diamond Estates and Rubicon Organics

-0.24

Correlation Coefficient

Diamond Estates  Rubicon Organics

Very good diversification

The 3 months correlation between Diamond and Rubicon is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Estates Wines and Rubicon Organics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rubicon Organics and Diamond Estates 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 Diamond Estates Wines 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 Diamond Estates i.e., Diamond Estates and Rubicon Organics go up and down completely randomly.

Pair Corralation between Diamond Estates and Rubicon Organics

Assuming the 90 days horizon Diamond Estates Wines is expected to under-perform the Rubicon Organics. But the stock apears to be less risky and, when comparing its historical volatility, Diamond Estates Wines is 1.7 times less risky than Rubicon Organics. The stock trades about -0.03 of its potential returns per unit of risk. The Rubicon Organics is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  48.00  in Rubicon Organics on December 30, 2024 and sell it today you would earn a total of  4.00  from holding Rubicon Organics or generate 8.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Diamond Estates Wines  vs.  Rubicon Organics

Diamond Estates Wines

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diamond Estates Wines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Diamond Estates is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Rubicon Organics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rubicon Organics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal primary indicators, Rubicon Organics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diamond Estates and Rubicon Organics

The main advantage of trading using opposite Diamond Estates and Rubicon Organics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Estates 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 Diamond Estates Wines 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.