Correlation Between Rico Auto and Bodhi Tree

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

By analyzing existing cross correlation between Rico Auto Industries and Bodhi Tree Multimedia, you can compare the effects of market volatilities on Rico Auto and Bodhi Tree 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 Rico Auto with a short position of Bodhi Tree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rico Auto and Bodhi Tree.

Diversification Opportunities for Rico Auto and Bodhi Tree

0.28

Correlation Coefficient

Rico Auto  Bodhi Tree

Modest diversification

The 3 months correlation between Rico and Bodhi is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Rico Auto Industries and Bodhi Tree Multimedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bodhi Tree Multimedia and Rico Auto 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 Rico Auto Industries are associated (or correlated) with Bodhi Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bodhi Tree Multimedia has no effect on the direction of Rico Auto i.e., Rico Auto and Bodhi Tree go up and down completely randomly.

Pair Corralation between Rico Auto and Bodhi Tree

Assuming the 90 days trading horizon Rico Auto is expected to generate 69.67 times less return on investment than Bodhi Tree. But when comparing it to its historical volatility, Rico Auto Industries is 22.1 times less risky than Bodhi Tree. It trades about 0.02 of its potential returns per unit of risk. Bodhi Tree Multimedia is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,742  in Bodhi Tree Multimedia on October 23, 2024 and sell it today you would lose (524.00) from holding Bodhi Tree Multimedia or give up 30.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.18%
Values	Daily Returns

Rico Auto Industries  vs.  Bodhi Tree Multimedia

Rico Auto Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rico Auto Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Rico Auto is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Bodhi Tree Multimedia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bodhi Tree Multimedia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Bodhi Tree is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Rico Auto and Bodhi Tree

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

The idea behind Rico Auto Industries and Bodhi Tree Multimedia 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.