Correlation Between Rainbow Childrens and S P

Can any of the company-specific risk be diversified away by investing in both Rainbow Childrens and S P 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 S P 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 S P Apparels, you can compare the effects of market volatilities on Rainbow Childrens and S P 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 S P. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rainbow Childrens and S P.

Diversification Opportunities for Rainbow Childrens and S P

0.21

Correlation Coefficient

Rainbow Childrens  S P

Modest diversification

The 3 months correlation between Rainbow and SPAL is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Rainbow Childrens Medicare and S P Apparels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on S P Apparels 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 S P. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of S P Apparels has no effect on the direction of Rainbow Childrens i.e., Rainbow Childrens and S P go up and down completely randomly.

Pair Corralation between Rainbow Childrens and S P

Assuming the 90 days trading horizon Rainbow Childrens Medicare is expected to generate 0.73 times more return on investment than S P. However, Rainbow Childrens Medicare is 1.36 times less risky than S P. It trades about -0.03 of its potential returns per unit of risk. S P Apparels is currently generating about -0.04 per unit of risk. If you would invest  163,235  in Rainbow Childrens Medicare on October 11, 2024 and sell it today you would lose (1,865) from holding Rainbow Childrens Medicare or give up 1.14% of portfolio value over 90 days.

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

Rainbow Childrens Medicare  vs.  S P Apparels

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.

S P Apparels

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in S P Apparels are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, S P is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Rainbow Childrens and S P

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

The idea behind Rainbow Childrens Medicare and S P Apparels 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.