Correlation Between RCL Foods and Standard Bank

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

Diversification Opportunities for RCL Foods and Standard Bank

-0.44

Correlation Coefficient

RCL Foods  Standard Bank

Very good diversification

The 3 months correlation between RCL and Standard is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding RCL Foods and Standard Bank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Standard Bank 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 Standard Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Standard Bank Group has no effect on the direction of RCL Foods i.e., RCL Foods and Standard Bank go up and down completely randomly.

Pair Corralation between RCL Foods and Standard Bank

Assuming the 90 days trading horizon RCL Foods is expected to generate 2.94 times more return on investment than Standard Bank. However, RCL Foods is 2.94 times more volatile than Standard Bank Group. It trades about 0.01 of its potential returns per unit of risk. Standard Bank Group is currently generating about -0.03 per unit of risk. If you would invest  95,900  in RCL Foods on December 22, 2024 and sell it today you would earn a total of  100.00  from holding RCL Foods or generate 0.1% return on investment over 90 days.

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

RCL Foods  vs.  Standard Bank Group

RCL Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days RCL Foods has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Standard Bank Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Standard Bank Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Standard Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with RCL Foods and Standard Bank

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

The idea behind RCL Foods and Standard Bank 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.