Correlation Between RCI Hospitality and NAGOYA RAILROAD

Can any of the company-specific risk be diversified away by investing in both RCI Hospitality and NAGOYA RAILROAD 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 NAGOYA RAILROAD 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 NAGOYA RAILROAD, you can compare the effects of market volatilities on RCI Hospitality and NAGOYA RAILROAD 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 NAGOYA RAILROAD. Check out your portfolio center. Please also check ongoing floating volatility patterns of RCI Hospitality and NAGOYA RAILROAD.

Diversification Opportunities for RCI Hospitality and NAGOYA RAILROAD

0.5

Correlation Coefficient

RCI Hospitality  NAGOYA RAILROAD

Very weak diversification

The 3 months correlation between RCI and NAGOYA is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding RCI Hospitality Holdings and NAGOYA RAILROAD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAGOYA RAILROAD 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 NAGOYA RAILROAD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAGOYA RAILROAD has no effect on the direction of RCI Hospitality i.e., RCI Hospitality and NAGOYA RAILROAD go up and down completely randomly.

Pair Corralation between RCI Hospitality and NAGOYA RAILROAD

Assuming the 90 days trading horizon RCI Hospitality Holdings is expected to generate 1.56 times more return on investment than NAGOYA RAILROAD. However, RCI Hospitality is 1.56 times more volatile than NAGOYA RAILROAD. It trades about -0.02 of its potential returns per unit of risk. NAGOYA RAILROAD is currently generating about -0.04 per unit of risk. If you would invest  8,271  in RCI Hospitality Holdings on October 11, 2024 and sell it today you would lose (2,761) from holding RCI Hospitality Holdings or give up 33.38% of portfolio value over 90 days.

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

RCI Hospitality Holdings  vs.  NAGOYA RAILROAD

RCI Hospitality Holdings

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RCI Hospitality Holdings are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, RCI Hospitality unveiled solid returns over the last few months and may actually be approaching a breakup point.

NAGOYA RAILROAD

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NAGOYA RAILROAD are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NAGOYA RAILROAD may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with RCI Hospitality and NAGOYA RAILROAD

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

The idea behind RCI Hospitality Holdings and NAGOYA RAILROAD 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.