Correlation Between Iris Clothings and Rainbow Childrens

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

By analyzing existing cross correlation between Iris Clothings Limited and Rainbow Childrens Medicare, you can compare the effects of market volatilities on Iris Clothings and Rainbow Childrens 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 Iris Clothings with a short position of Rainbow Childrens. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iris Clothings and Rainbow Childrens.

Diversification Opportunities for Iris Clothings and Rainbow Childrens

-0.43

Correlation Coefficient

Iris Clothings  Rainbow Childrens

Very good diversification

The 3 months correlation between Iris and Rainbow is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Iris Clothings Limited and Rainbow Childrens Medicare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rainbow Childrens and Iris Clothings 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 Iris Clothings Limited are associated (or correlated) with Rainbow Childrens. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rainbow Childrens has no effect on the direction of Iris Clothings i.e., Iris Clothings and Rainbow Childrens go up and down completely randomly.

Pair Corralation between Iris Clothings and Rainbow Childrens

Assuming the 90 days trading horizon Iris Clothings Limited is expected to under-perform the Rainbow Childrens. But the stock apears to be less risky and, when comparing its historical volatility, Iris Clothings Limited is 1.18 times less risky than Rainbow Childrens. The stock trades about -0.06 of its potential returns per unit of risk. The Rainbow Childrens Medicare is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  139,595  in Rainbow Childrens Medicare on October 8, 2024 and sell it today you would earn a total of  16,185  from holding Rainbow Childrens Medicare or generate 11.59% return on investment over 90 days.

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

Iris Clothings Limited  vs.  Rainbow Childrens Medicare

Iris Clothings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iris Clothings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Rainbow Childrens

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rainbow Childrens Medicare are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental drivers, Rainbow Childrens showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iris Clothings and Rainbow Childrens

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

The idea behind Iris Clothings Limited and Rainbow Childrens Medicare 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.