Correlation Between Rainbow Childrens and Premier Polyfilm

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

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

Diversification Opportunities for Rainbow Childrens and Premier Polyfilm

0.66

Correlation Coefficient

Rainbow Childrens  Premier Polyfilm

Poor diversification

The 3 months correlation between Rainbow and Premier is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Rainbow Childrens Medicare and Premier Polyfilm Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Polyfilm and Rainbow Childrens 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 Rainbow Childrens Medicare are associated (or correlated) with Premier Polyfilm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Polyfilm has no effect on the direction of Rainbow Childrens i.e., Rainbow Childrens and Premier Polyfilm go up and down completely randomly.

Pair Corralation between Rainbow Childrens and Premier Polyfilm

Assuming the 90 days trading horizon Rainbow Childrens Medicare is expected to under-perform the Premier Polyfilm. But the stock apears to be less risky and, when comparing its historical volatility, Rainbow Childrens Medicare is 1.34 times less risky than Premier Polyfilm. The stock trades about -0.04 of its potential returns per unit of risk. The Premier Polyfilm Limited is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  5,945  in Premier Polyfilm Limited on September 23, 2024 and sell it today you would earn a total of  1,197  from holding Premier Polyfilm Limited or generate 20.13% return on investment over 90 days.

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

Rainbow Childrens Medicare  vs.  Premier Polyfilm Limited

Rainbow Childrens

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rainbow Childrens Medicare are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental drivers, Rainbow Childrens showed solid returns over the last few months and may actually be approaching a breakup point.

Premier Polyfilm

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Premier Polyfilm Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Premier Polyfilm reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rainbow Childrens and Premier Polyfilm

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

The idea behind Rainbow Childrens Medicare and Premier Polyfilm Limited 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.