Correlation Between RH and TheRealReal

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

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

Diversification Opportunities for RH and TheRealReal

0.88

Correlation Coefficient

RH  TheRealReal

Very poor diversification

The 3 months correlation between RH and TheRealReal is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding RH and TheRealReal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TheRealReal 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 TheRealReal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TheRealReal has no effect on the direction of RH i.e., RH and TheRealReal go up and down completely randomly.

Pair Corralation between RH and TheRealReal

Allowing for the 90-day total investment horizon RH is expected to generate 0.7 times more return on investment than TheRealReal. However, RH is 1.44 times less risky than TheRealReal. It trades about -0.21 of its potential returns per unit of risk. TheRealReal is currently generating about -0.19 per unit of risk. If you would invest  39,393  in RH on December 28, 2024 and sell it today you would lose (15,051) from holding RH or give up 38.21% of portfolio value over 90 days.

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

RH  vs.  TheRealReal

RH

Risk-Adjusted Performance

Very Weak

Over the last 90 days RH has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

TheRealReal

Risk-Adjusted Performance

Very Weak

Over the last 90 days TheRealReal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with RH and TheRealReal

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

The idea behind RH and TheRealReal 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.