Correlation Between Red Hill and Sonic Healthcare

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

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

Diversification Opportunities for Red Hill and Sonic Healthcare

0.63

Correlation Coefficient

Red Hill  Sonic Healthcare

Poor diversification

The 3 months correlation between Red and Sonic is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Red Hill Iron and Sonic Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonic Healthcare and Red Hill 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 Red Hill Iron are associated (or correlated) with Sonic Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonic Healthcare has no effect on the direction of Red Hill i.e., Red Hill and Sonic Healthcare go up and down completely randomly.

Pair Corralation between Red Hill and Sonic Healthcare

Assuming the 90 days trading horizon Red Hill Iron is expected to under-perform the Sonic Healthcare. In addition to that, Red Hill is 1.64 times more volatile than Sonic Healthcare. It trades about -0.11 of its total potential returns per unit of risk. Sonic Healthcare is currently generating about -0.18 per unit of volatility. If you would invest  2,860  in Sonic Healthcare on October 9, 2024 and sell it today you would lose (77.00) from holding Sonic Healthcare or give up 2.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Red Hill Iron  vs.  Sonic Healthcare

Red Hill Iron

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Red Hill Iron are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Red Hill may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sonic Healthcare

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sonic Healthcare are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Sonic Healthcare is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Red Hill and Sonic Healthcare

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

The idea behind Red Hill Iron and Sonic Healthcare 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.