Correlation Between Reckitt Benckiser and Clorox

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

By analyzing existing cross correlation between Reckitt Benckiser Group and The Clorox, you can compare the effects of market volatilities on Reckitt Benckiser and Clorox 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 Reckitt Benckiser with a short position of Clorox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reckitt Benckiser and Clorox.

Diversification Opportunities for Reckitt Benckiser and Clorox

-0.26

Correlation Coefficient

Reckitt Benckiser  Clorox

Very good diversification

The 3 months correlation between Reckitt and Clorox is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Reckitt Benckiser Group and The Clorox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clorox and Reckitt Benckiser 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 Reckitt Benckiser Group are associated (or correlated) with Clorox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clorox has no effect on the direction of Reckitt Benckiser i.e., Reckitt Benckiser and Clorox go up and down completely randomly.

Pair Corralation between Reckitt Benckiser and Clorox

Assuming the 90 days horizon Reckitt Benckiser Group is expected to under-perform the Clorox. In addition to that, Reckitt Benckiser is 1.14 times more volatile than The Clorox. It trades about -0.14 of its total potential returns per unit of risk. The Clorox is currently generating about -0.14 per unit of volatility. If you would invest  16,735  in The Clorox on September 27, 2024 and sell it today you would lose (392.00) from holding The Clorox or give up 2.34% of portfolio value over 90 days.

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

Reckitt Benckiser Group  vs.  The Clorox

Reckitt Benckiser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reckitt Benckiser Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Reckitt Benckiser is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Clorox

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Clorox are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Clorox is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Reckitt Benckiser and Clorox

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

The idea behind Reckitt Benckiser Group and The Clorox 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.