Correlation Between RCL Foods and Pepkor Holdings

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

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

Diversification Opportunities for RCL Foods and Pepkor Holdings

0.62

Correlation Coefficient

RCL Foods  Pepkor Holdings

Poor diversification

The 3 months correlation between RCL and Pepkor is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding RCL Foods and Pepkor Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pepkor 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 Pepkor Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pepkor Holdings has no effect on the direction of RCL Foods i.e., RCL Foods and Pepkor Holdings go up and down completely randomly.

Pair Corralation between RCL Foods and Pepkor Holdings

Assuming the 90 days trading horizon RCL Foods is expected to generate 2.49 times less return on investment than Pepkor Holdings. In addition to that, RCL Foods is 1.09 times more volatile than Pepkor Holdings. It trades about 0.07 of its total potential returns per unit of risk. Pepkor Holdings is currently generating about 0.2 per unit of volatility. If you would invest  238,400  in Pepkor Holdings on October 11, 2024 and sell it today you would earn a total of  41,600  from holding Pepkor Holdings or generate 17.45% 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.  Pepkor Holdings

RCL Foods

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RCL Foods are ranked lower than 5 (%) 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.

Pepkor Holdings

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Pepkor Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Pepkor Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RCL Foods and Pepkor Holdings

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

The idea behind RCL Foods and Pepkor 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.