Correlation Between MC Mining and RCL Foods

Can any of the company-specific risk be diversified away by investing in both MC Mining and RCL Foods 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 MC Mining and RCL Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between MC Mining and RCL Foods, you can compare the effects of market volatilities on MC Mining and RCL Foods 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 MC Mining with a short position of RCL Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of MC Mining and RCL Foods.

Diversification Opportunities for MC Mining and RCL Foods

-0.29

Correlation Coefficient

MC Mining  RCL Foods

Very good diversification

The 3 months correlation between MCZ and RCL is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding MC Mining and RCL Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCL Foods and MC Mining 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 MC Mining are associated (or correlated) with RCL Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCL Foods has no effect on the direction of MC Mining i.e., MC Mining and RCL Foods go up and down completely randomly.

Pair Corralation between MC Mining and RCL Foods

Assuming the 90 days trading horizon MC Mining is expected to generate 2.35 times more return on investment than RCL Foods. However, MC Mining is 2.35 times more volatile than RCL Foods. It trades about 0.26 of its potential returns per unit of risk. RCL Foods is currently generating about 0.16 per unit of risk. If you would invest  14,000  in MC Mining on September 24, 2024 and sell it today you would earn a total of  3,000  from holding MC Mining or generate 21.43% return on investment over 90 days.

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

MC Mining  vs.  RCL Foods

MC Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MC Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, MC Mining is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

RCL Foods

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RCL Foods are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, RCL Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MC Mining and RCL Foods

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

The idea behind MC Mining and RCL Foods 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.