Correlation Between RH and Educational Development

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

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

Diversification Opportunities for RH and Educational Development

-0.64

Correlation Coefficient

RH  Educational Development

Excellent diversification

The 3 months correlation between RH and Educational is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding RH and Educational Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Educational Development and RH 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 RH are associated (or correlated) with Educational Development. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Educational Development has no effect on the direction of RH i.e., RH and Educational Development go up and down completely randomly.

Pair Corralation between RH and Educational Development

Allowing for the 90-day total investment horizon RH is expected to generate 1.76 times more return on investment than Educational Development. However, RH is 1.76 times more volatile than Educational Development. It trades about 0.16 of its potential returns per unit of risk. Educational Development is currently generating about -0.22 per unit of risk. If you would invest  34,473  in RH on September 22, 2024 and sell it today you would earn a total of  5,353  from holding RH or generate 15.53% return on investment over 90 days.

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

RH  vs.  Educational Development

RH

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RH are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain technical indicators, RH demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Educational Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Educational Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with RH and Educational Development

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

The idea behind RH and Educational Development 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.