Correlation Between Richelieu Hardware and Renoworks Software

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

By analyzing existing cross correlation between Richelieu Hardware and Renoworks Software, you can compare the effects of market volatilities on Richelieu Hardware and Renoworks Software 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 Richelieu Hardware with a short position of Renoworks Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of Richelieu Hardware and Renoworks Software.

Diversification Opportunities for Richelieu Hardware and Renoworks Software

-0.09

Correlation Coefficient

Richelieu Hardware  Renoworks Software

Good diversification

The 3 months correlation between Richelieu and Renoworks is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Richelieu Hardware and Renoworks Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renoworks Software and Richelieu Hardware 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 Richelieu Hardware are associated (or correlated) with Renoworks Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renoworks Software has no effect on the direction of Richelieu Hardware i.e., Richelieu Hardware and Renoworks Software go up and down completely randomly.

Pair Corralation between Richelieu Hardware and Renoworks Software

Assuming the 90 days trading horizon Richelieu Hardware is expected to generate 0.54 times more return on investment than Renoworks Software. However, Richelieu Hardware is 1.85 times less risky than Renoworks Software. It trades about 0.0 of its potential returns per unit of risk. Renoworks Software is currently generating about 0.0 per unit of risk. If you would invest  3,835  in Richelieu Hardware on November 20, 2024 and sell it today you would lose (32.00) from holding Richelieu Hardware or give up 0.83% of portfolio value over 90 days.

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

Richelieu Hardware  vs.  Renoworks Software

Richelieu Hardware

Risk-Adjusted Performance

Very Weak

Over the last 90 days Richelieu Hardware has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Richelieu Hardware is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Renoworks Software

Risk-Adjusted Performance

Very Weak

Over the last 90 days Renoworks Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Renoworks Software is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Richelieu Hardware and Renoworks Software

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

The idea behind Richelieu Hardware and Renoworks Software 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.