Correlation Between Reckitt Benckiser and Empire Metals

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

Diversification Opportunities for Reckitt Benckiser and Empire Metals

0.67

Correlation Coefficient

Reckitt Benckiser  Empire Metals

Poor diversification

The 3 months correlation between Reckitt and Empire is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Reckitt Benckiser Group and Empire Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empire Metals Limited 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 Empire Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empire Metals Limited has no effect on the direction of Reckitt Benckiser i.e., Reckitt Benckiser and Empire Metals go up and down completely randomly.

Pair Corralation between Reckitt Benckiser and Empire Metals

Assuming the 90 days trading horizon Reckitt Benckiser is expected to generate 6.66 times less return on investment than Empire Metals. But when comparing it to its historical volatility, Reckitt Benckiser Group is 3.71 times less risky than Empire Metals. It trades about 0.13 of its potential returns per unit of risk. Empire Metals Limited is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  675.00  in Empire Metals Limited on December 30, 2024 and sell it today you would earn a total of  480.00  from holding Empire Metals Limited or generate 71.11% return on investment over 90 days.

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

Reckitt Benckiser Group  vs.  Empire Metals Limited

Reckitt Benckiser

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reckitt Benckiser Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Reckitt Benckiser may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Empire Metals Limited

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Empire Metals Limited are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Empire Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reckitt Benckiser and Empire Metals

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

The idea behind Reckitt Benckiser Group and Empire Metals Limited 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.