Correlation Between Reckitt Benckiser and Diversified Energy

Can any of the company-specific risk be diversified away by investing in both Reckitt Benckiser and Diversified Energy 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 Reckitt Benckiser and Diversified Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Reckitt Benckiser Group and Diversified Energy, you can compare the effects of market volatilities on Reckitt Benckiser and Diversified Energy 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 Reckitt Benckiser with a short position of Diversified Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reckitt Benckiser and Diversified Energy.

Diversification Opportunities for Reckitt Benckiser and Diversified Energy

0.41

Correlation Coefficient

Reckitt Benckiser  Diversified Energy

Very weak diversification

The 3 months correlation between Reckitt and Diversified is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Reckitt Benckiser Group and Diversified Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Energy and Reckitt Benckiser 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 Reckitt Benckiser Group are associated (or correlated) with Diversified Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Energy has no effect on the direction of Reckitt Benckiser i.e., Reckitt Benckiser and Diversified Energy go up and down completely randomly.

Pair Corralation between Reckitt Benckiser and Diversified Energy

Assuming the 90 days trading horizon Reckitt Benckiser is expected to generate 6.16 times less return on investment than Diversified Energy. But when comparing it to its historical volatility, Reckitt Benckiser Group is 1.72 times less risky than Diversified Energy. It trades about 0.07 of its potential returns per unit of risk. Diversified Energy is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  84,181  in Diversified Energy on September 12, 2024 and sell it today you would earn a total of  37,719  from holding Diversified Energy or generate 44.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Reckitt Benckiser Group  vs.  Diversified Energy

Reckitt Benckiser

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Reckitt Benckiser Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Reckitt Benckiser is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Diversified Energy

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reckitt Benckiser and Diversified Energy

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

The idea behind Reckitt Benckiser Group and Diversified Energy 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.