Correlation Between RCL Foods and MTN

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

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

Diversification Opportunities for RCL Foods and MTN

0.47

Correlation Coefficient

RCL Foods  MTN

Very weak diversification

The 3 months correlation between RCL and MTN is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding RCL Foods and MTN Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MTN 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 MTN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MTN Group has no effect on the direction of RCL Foods i.e., RCL Foods and MTN go up and down completely randomly.

Pair Corralation between RCL Foods and MTN

Assuming the 90 days trading horizon RCL Foods is expected to generate 6.06 times less return on investment than MTN. In addition to that, RCL Foods is 1.05 times more volatile than MTN Group. It trades about 0.04 of its total potential returns per unit of risk. MTN Group is currently generating about 0.25 per unit of volatility. If you would invest  822,200  in MTN Group on December 19, 2024 and sell it today you would earn a total of  343,800  from holding MTN Group or generate 41.81% 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.  MTN Group

RCL Foods

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RCL Foods are ranked lower than 3 (%) 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.

MTN Group

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MTN Group are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, MTN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RCL Foods and MTN

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

The idea behind RCL Foods and MTN 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.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.