Correlation Between RCL Foods and Netcare

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

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

Diversification Opportunities for RCL Foods and Netcare

0.16

Correlation Coefficient

RCL Foods  Netcare

Average diversification

The 3 months correlation between RCL and Netcare is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding RCL Foods and Netcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netcare 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 Netcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netcare has no effect on the direction of RCL Foods i.e., RCL Foods and Netcare go up and down completely randomly.

Pair Corralation between RCL Foods and Netcare

Assuming the 90 days trading horizon RCL Foods is expected to generate 2.2 times more return on investment than Netcare. However, RCL Foods is 2.2 times more volatile than Netcare. It trades about 0.01 of its potential returns per unit of risk. Netcare is currently generating about 0.01 per unit of risk. If you would invest  108,500  in RCL Foods on October 10, 2024 and sell it today you would lose (12,500) from holding RCL Foods or give up 11.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

RCL Foods  vs.  Netcare

RCL Foods

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RCL Foods are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, RCL Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Netcare

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Netcare are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Netcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with RCL Foods and Netcare

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

The idea behind RCL Foods and Netcare 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.