Correlation Between RCL Foods and Capitec Bank

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

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

Diversification Opportunities for RCL Foods and Capitec Bank

0.56

Correlation Coefficient

RCL Foods  Capitec Bank

Very weak diversification

The 3 months correlation between RCL and Capitec is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding RCL Foods and Capitec Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capitec Bank Holdings 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 Capitec Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capitec Bank Holdings has no effect on the direction of RCL Foods i.e., RCL Foods and Capitec Bank go up and down completely randomly.

Pair Corralation between RCL Foods and Capitec Bank

Assuming the 90 days trading horizon RCL Foods is expected to generate 2.0 times more return on investment than Capitec Bank. However, RCL Foods is 2.0 times more volatile than Capitec Bank Holdings. It trades about 0.11 of its potential returns per unit of risk. Capitec Bank Holdings is currently generating about 0.19 per unit of risk. If you would invest  85,000  in RCL Foods on September 15, 2024 and sell it today you would earn a total of  11,300  from holding RCL Foods or generate 13.29% return on investment over 90 days.

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

RCL Foods  vs.  Capitec Bank Holdings

RCL Foods

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RCL Foods are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, RCL Foods exhibited solid returns over the last few months and may actually be approaching a breakup point.

Capitec Bank Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capitec Bank Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Capitec Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with RCL Foods and Capitec Bank

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

The idea behind RCL Foods and Capitec Bank Holdings 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.