Correlation Between Plum Acquisition and RH

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

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

Diversification Opportunities for Plum Acquisition and RH

0.22

Correlation Coefficient

Plum Acquisition  RH

Modest diversification

The 3 months correlation between Plum and RH is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Plum Acquisition Corp and RH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RH and Plum Acquisition 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 Plum Acquisition Corp are associated (or correlated) with RH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RH has no effect on the direction of Plum Acquisition i.e., Plum Acquisition and RH go up and down completely randomly.

Pair Corralation between Plum Acquisition and RH

Assuming the 90 days horizon Plum Acquisition is expected to generate 6.0 times less return on investment than RH. But when comparing it to its historical volatility, Plum Acquisition Corp is 26.16 times less risky than RH. It trades about 0.22 of its potential returns per unit of risk. RH is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  39,678  in RH on October 10, 2024 and sell it today you would earn a total of  1,149  from holding RH or generate 2.9% return on investment over 90 days.

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

Plum Acquisition Corp  vs.  RH

Plum Acquisition Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plum Acquisition Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking indicators, Plum Acquisition is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

RH

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RH are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical indicators, RH demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Plum Acquisition and RH

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

The idea behind Plum Acquisition Corp and RH 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.