Correlation Between RCI Hospitality and Entravision Communications

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

Diversification Opportunities for RCI Hospitality and Entravision Communications

0.86

Correlation Coefficient

RCI Hospitality  Entravision Communications

Very poor diversification

The 3 months correlation between RCI and Entravision is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding RCI Hospitality Holdings and Entravision Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entravision Communications 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 Entravision Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entravision Communications has no effect on the direction of RCI Hospitality i.e., RCI Hospitality and Entravision Communications go up and down completely randomly.

Pair Corralation between RCI Hospitality and Entravision Communications

Assuming the 90 days trading horizon RCI Hospitality Holdings is expected to generate 0.85 times more return on investment than Entravision Communications. However, RCI Hospitality Holdings is 1.18 times less risky than Entravision Communications. It trades about 0.22 of its potential returns per unit of risk. Entravision Communications is currently generating about 0.12 per unit of risk. If you would invest  3,780  in RCI Hospitality Holdings on October 9, 2024 and sell it today you would earn a total of  1,720  from holding RCI Hospitality Holdings or generate 45.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

RCI Hospitality Holdings  vs.  Entravision Communications

RCI Hospitality Holdings

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RCI Hospitality Holdings are ranked lower than 17 (%) 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.

Entravision Communications

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Entravision Communications are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Entravision Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RCI Hospitality and Entravision Communications

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

The idea behind RCI Hospitality Holdings and Entravision Communications 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.