Correlation Between RCI Hospitality and Arcos Dorados

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

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

Diversification Opportunities for RCI Hospitality and Arcos Dorados

-0.9

Correlation Coefficient

RCI Hospitality  Arcos Dorados

Pay attention - limited upside

The 3 months correlation between RCI and Arcos is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding RCI Hospitality Holdings and Arcos Dorados Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arcos Dorados Holdings and RCI Hospitality 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 RCI Hospitality Holdings are associated (or correlated) with Arcos Dorados. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arcos Dorados Holdings has no effect on the direction of RCI Hospitality i.e., RCI Hospitality and Arcos Dorados go up and down completely randomly.

Pair Corralation between RCI Hospitality and Arcos Dorados

Given the investment horizon of 90 days RCI Hospitality Holdings is expected to under-perform the Arcos Dorados. In addition to that, RCI Hospitality is 1.08 times more volatile than Arcos Dorados Holdings. It trades about -0.29 of its total potential returns per unit of risk. Arcos Dorados Holdings is currently generating about -0.15 per unit of volatility. If you would invest  744.00  in Arcos Dorados Holdings on October 21, 2024 and sell it today you would lose (29.00) from holding Arcos Dorados Holdings or give up 3.9% of portfolio value over 90 days.

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

RCI Hospitality Holdings  vs.  Arcos Dorados Holdings

RCI Hospitality Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RCI Hospitality Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain fundamental indicators, RCI Hospitality disclosed solid returns over the last few months and may actually be approaching a breakup point.

Arcos Dorados Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arcos Dorados Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with RCI Hospitality and Arcos Dorados

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

The idea behind RCI Hospitality Holdings and Arcos Dorados Holdings 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.