Correlation Between Rea and Computershare

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

By analyzing existing cross correlation between Rea Group and Computershare, you can compare the effects of market volatilities on Rea and Computershare 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 Rea with a short position of Computershare. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rea and Computershare.

Diversification Opportunities for Rea and Computershare

0.83

Correlation Coefficient

Rea  Computershare

Very poor diversification

The 3 months correlation between Rea and Computershare is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Rea Group and Computershare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Computershare and Rea 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 Rea Group are associated (or correlated) with Computershare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Computershare has no effect on the direction of Rea i.e., Rea and Computershare go up and down completely randomly.

Pair Corralation between Rea and Computershare

Assuming the 90 days trading horizon Rea is expected to generate 1.04 times less return on investment than Computershare. But when comparing it to its historical volatility, Rea Group is 1.13 times less risky than Computershare. It trades about 0.2 of its potential returns per unit of risk. Computershare is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,773  in Computershare on September 15, 2024 and sell it today you would earn a total of  544.00  from holding Computershare or generate 19.62% return on investment over 90 days.

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

Rea Group  vs.  Computershare

Rea Group

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rea Group are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rea unveiled solid returns over the last few months and may actually be approaching a breakup point.

Computershare

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Computershare are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Computershare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rea and Computershare

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

The idea behind Rea Group and Computershare 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.