Correlation Between Basic Materials and RB Capital

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

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

Diversification Opportunities for Basic Materials and RB Capital

-0.31

Correlation Coefficient

Basic Materials  RB Capital

Very good diversification

The 3 months correlation between Basic and RBDS11 is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and RB Capital Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RB Capital Development and Basic Materials 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 Basic Materials are associated (or correlated) with RB Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RB Capital Development has no effect on the direction of Basic Materials i.e., Basic Materials and RB Capital go up and down completely randomly.

Pair Corralation between Basic Materials and RB Capital

Assuming the 90 days trading horizon Basic Materials is expected to under-perform the RB Capital. But the index apears to be less risky and, when comparing its historical volatility, Basic Materials is 5.93 times less risky than RB Capital. The index trades about -0.02 of its potential returns per unit of risk. The RB Capital Development is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  289.00  in RB Capital Development on December 29, 2024 and sell it today you would lose (24.00) from holding RB Capital Development or give up 8.3% of portfolio value over 90 days.

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

Basic Materials  vs.  RB Capital Development

Pair Trading with Basic Materials and RB Capital

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

The idea behind Basic Materials and RB Capital Development 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.

Check out your portfolio center.

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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.