Correlation Between RCL Foods and RMB Holdings

Can any of the company-specific risk be diversified away by investing in both RCL Foods and RMB 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 RMB 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 RMB Holdings, you can compare the effects of market volatilities on RCL Foods and RMB 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 RMB Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of RCL Foods and RMB Holdings.

Diversification Opportunities for RCL Foods and RMB Holdings

0.39

Correlation Coefficient

RCL Foods  RMB Holdings

Weak diversification

The 3 months correlation between RCL and RMB is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding RCL Foods and RMB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMB 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 RMB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMB Holdings has no effect on the direction of RCL Foods i.e., RCL Foods and RMB Holdings go up and down completely randomly.

Pair Corralation between RCL Foods and RMB Holdings

Assuming the 90 days trading horizon RCL Foods is expected to generate 0.83 times more return on investment than RMB Holdings. However, RCL Foods is 1.2 times less risky than RMB Holdings. It trades about 0.08 of its potential returns per unit of risk. RMB Holdings is currently generating about 0.04 per unit of risk. If you would invest  91,000  in RCL Foods on October 10, 2024 and sell it today you would earn a total of  4,100  from holding RCL Foods or generate 4.51% return on investment over 90 days.

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

RCL Foods  vs.  RMB 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.

RMB Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RMB Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, RMB Holdings 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 RMB Holdings

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

The idea behind RCL Foods and RMB 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.