Correlation Between Rainbow Childrens and Southern Petrochemicals

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

Diversification Opportunities for Rainbow Childrens and Southern Petrochemicals

-0.63

Correlation Coefficient

Rainbow Childrens  Southern Petrochemicals

Excellent diversification

The 3 months correlation between Rainbow and Southern is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Rainbow Childrens Medicare and Southern Petrochemicals Indust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Petrochemicals 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 Southern Petrochemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Petrochemicals has no effect on the direction of Rainbow Childrens i.e., Rainbow Childrens and Southern Petrochemicals go up and down completely randomly.

Pair Corralation between Rainbow Childrens and Southern Petrochemicals

Assuming the 90 days trading horizon Rainbow Childrens Medicare is expected to generate 0.88 times more return on investment than Southern Petrochemicals. However, Rainbow Childrens Medicare is 1.14 times less risky than Southern Petrochemicals. It trades about 0.07 of its potential returns per unit of risk. Southern Petrochemicals Industries is currently generating about 0.02 per unit of risk. If you would invest  108,799  in Rainbow Childrens Medicare on September 23, 2024 and sell it today you would earn a total of  46,031  from holding Rainbow Childrens Medicare or generate 42.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.25%
Values	Daily Returns

Rainbow Childrens Medicare  vs.  Southern Petrochemicals Indust

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.

Southern Petrochemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Petrochemicals Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Rainbow Childrens and Southern Petrochemicals

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

The idea behind Rainbow Childrens Medicare and Southern Petrochemicals Industries 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.