Correlation Between RB Food and DOD Biotech

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

By analyzing existing cross correlation between RB Food Supply and DOD Biotech Public, you can compare the effects of market volatilities on RB Food and DOD Biotech 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 RB Food with a short position of DOD Biotech. Check out your portfolio center. Please also check ongoing floating volatility patterns of RB Food and DOD Biotech.

Diversification Opportunities for RB Food and DOD Biotech

-0.16

Correlation Coefficient

RB Food  DOD Biotech

Good diversification

The 3 months correlation between RBF and DOD is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding RB Food Supply and DOD Biotech Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOD Biotech Public and RB Food 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 RB Food Supply are associated (or correlated) with DOD Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOD Biotech Public has no effect on the direction of RB Food i.e., RB Food and DOD Biotech go up and down completely randomly.

Pair Corralation between RB Food and DOD Biotech

Assuming the 90 days trading horizon RB Food Supply is expected to generate 1.0 times more return on investment than DOD Biotech. However, RB Food Supply is 1.0 times less risky than DOD Biotech. It trades about 0.04 of its potential returns per unit of risk. DOD Biotech Public is currently generating about 0.04 per unit of risk. If you would invest  1,257  in RB Food Supply on September 25, 2024 and sell it today you would lose (557.00) from holding RB Food Supply or give up 44.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

RB Food Supply  vs.  DOD Biotech Public

RB Food Supply

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RB Food Supply are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, RB Food may actually be approaching a critical reversion point that can send shares even higher in January 2025.

DOD Biotech Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DOD Biotech Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with RB Food and DOD Biotech

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

The idea behind RB Food Supply and DOD Biotech Public 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.