Correlation Between Rainbow Childrens and Total Transport

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

Diversification Opportunities for Rainbow Childrens and Total Transport

0.68

Correlation Coefficient

Rainbow Childrens  Total Transport

Poor diversification

The 3 months correlation between Rainbow and Total is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Rainbow Childrens Medicare and Total Transport Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Total Transport Systems 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 Total Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Total Transport Systems has no effect on the direction of Rainbow Childrens i.e., Rainbow Childrens and Total Transport go up and down completely randomly.

Pair Corralation between Rainbow Childrens and Total Transport

Assuming the 90 days trading horizon Rainbow Childrens Medicare is expected to under-perform the Total Transport. But the stock apears to be less risky and, when comparing its historical volatility, Rainbow Childrens Medicare is 1.4 times less risky than Total Transport. The stock trades about -0.15 of its potential returns per unit of risk. The Total Transport Systems is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  7,220  in Total Transport Systems on November 20, 2024 and sell it today you would lose (923.00) from holding Total Transport Systems or give up 12.78% of portfolio value over 90 days.

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

Rainbow Childrens Medicare  vs.  Total Transport Systems

Rainbow Childrens

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rainbow Childrens Medicare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental drivers remain fairly stable which may send shares a bit higher in March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Total Transport Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Total Transport Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Rainbow Childrens and Total Transport

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

The idea behind Rainbow Childrens Medicare and Total Transport Systems 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.