Correlation Between Finning International and Ritchie Bros

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

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

Diversification Opportunities for Finning International and Ritchie Bros

0.7

Correlation Coefficient

Finning International  Ritchie Bros

Poor diversification

The 3 months correlation between Finning and Ritchie is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Finning International and Ritchie Bros Auctioneers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ritchie Bros Auctioneers and Finning International 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 Finning International are associated (or correlated) with Ritchie Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ritchie Bros Auctioneers has no effect on the direction of Finning International i.e., Finning International and Ritchie Bros go up and down completely randomly.

Pair Corralation between Finning International and Ritchie Bros

Assuming the 90 days trading horizon Finning International is expected to generate 1.48 times more return on investment than Ritchie Bros. However, Finning International is 1.48 times more volatile than Ritchie Bros Auctioneers. It trades about 0.07 of its potential returns per unit of risk. Ritchie Bros Auctioneers is currently generating about 0.08 per unit of risk. If you would invest  3,693  in Finning International on December 30, 2024 and sell it today you would earn a total of  321.00  from holding Finning International or generate 8.69% return on investment over 90 days.

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

Finning International  vs.  Ritchie Bros Auctioneers

Finning International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Finning International are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Finning International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Ritchie Bros Auctioneers

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ritchie Bros Auctioneers are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Ritchie Bros may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Finning International and Ritchie Bros

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

The idea behind Finning International and Ritchie Bros Auctioneers 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.