Correlation Between RCL Foods and Absa

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

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

Diversification Opportunities for RCL Foods and Absa

0.76

Correlation Coefficient

RCL Foods  Absa

Poor diversification

The 3 months correlation between RCL and Absa is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding RCL Foods and Absa Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Absa Group and RCL Foods 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 RCL Foods are associated (or correlated) with Absa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Absa Group has no effect on the direction of RCL Foods i.e., RCL Foods and Absa go up and down completely randomly.

Pair Corralation between RCL Foods and Absa

Assuming the 90 days trading horizon RCL Foods is expected to under-perform the Absa. In addition to that, RCL Foods is 1.6 times more volatile than Absa Group. It trades about -0.03 of its total potential returns per unit of risk. Absa Group is currently generating about 0.03 per unit of volatility. If you would invest  1,910,300  in Absa Group on October 22, 2024 and sell it today you would earn a total of  8,600  from holding Absa Group or generate 0.45% return on investment over 90 days.

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

RCL Foods  vs.  Absa Group

RCL Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RCL Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, RCL Foods is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Absa Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Absa Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Absa exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RCL Foods and Absa

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

The idea behind RCL Foods and Absa Group 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.