Correlation Between RCL Foods and Brimstone Investment

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

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

Diversification Opportunities for RCL Foods and Brimstone Investment

0.06

Correlation Coefficient

RCL Foods  Brimstone Investment

Significant diversification

The 3 months correlation between RCL and Brimstone is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding RCL Foods and Brimstone Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brimstone Investment 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 Brimstone Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brimstone Investment has no effect on the direction of RCL Foods i.e., RCL Foods and Brimstone Investment go up and down completely randomly.

Pair Corralation between RCL Foods and Brimstone Investment

Assuming the 90 days trading horizon RCL Foods is expected to generate 1.21 times more return on investment than Brimstone Investment. However, RCL Foods is 1.21 times more volatile than Brimstone Investment. It trades about 0.02 of its potential returns per unit of risk. Brimstone Investment is currently generating about -0.1 per unit of risk. If you would invest  94,500  in RCL Foods on December 30, 2024 and sell it today you would earn a total of  1,500  from holding RCL Foods or generate 1.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

RCL Foods  vs.  Brimstone Investment

RCL Foods

Risk-Adjusted Performance

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.

Brimstone Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brimstone Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with RCL Foods and Brimstone Investment

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

The idea behind RCL Foods and Brimstone Investment 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.