Correlation Between Reynolds Consumer and Eastern

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

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

Diversification Opportunities for Reynolds Consumer and Eastern

0.8

Correlation Coefficient

Reynolds Consumer  Eastern

Very poor diversification

The 3 months correlation between Reynolds and Eastern is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Reynolds Consumer Products and Eastern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern and Reynolds Consumer 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 Reynolds Consumer Products are associated (or correlated) with Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern has no effect on the direction of Reynolds Consumer i.e., Reynolds Consumer and Eastern go up and down completely randomly.

Pair Corralation between Reynolds Consumer and Eastern

Given the investment horizon of 90 days Reynolds Consumer Products is expected to generate 0.44 times more return on investment than Eastern. However, Reynolds Consumer Products is 2.26 times less risky than Eastern. It trades about -0.2 of its potential returns per unit of risk. Eastern Co is currently generating about -0.17 per unit of risk. If you would invest  2,776  in Reynolds Consumer Products on October 6, 2024 and sell it today you would lose (117.00) from holding Reynolds Consumer Products or give up 4.21% of portfolio value over 90 days.

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

Reynolds Consumer Products  vs.  Eastern Co

Reynolds Consumer

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reynolds Consumer Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Reynolds Consumer and Eastern

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

The idea behind Reynolds Consumer Products and Eastern Co 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.