Correlation Between RMB Holdings and Allied Electronics

Can any of the company-specific risk be diversified away by investing in both RMB Holdings and Allied Electronics 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 RMB Holdings and Allied Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RMB Holdings and Allied Electronics, you can compare the effects of market volatilities on RMB Holdings and Allied Electronics 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 RMB Holdings with a short position of Allied Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of RMB Holdings and Allied Electronics.

Diversification Opportunities for RMB Holdings and Allied Electronics

0.76

Correlation Coefficient

RMB Holdings  Allied Electronics

Poor diversification

The 3 months correlation between RMB and Allied is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding RMB Holdings and Allied Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allied Electronics and RMB Holdings 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 RMB Holdings are associated (or correlated) with Allied Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allied Electronics has no effect on the direction of RMB Holdings i.e., RMB Holdings and Allied Electronics go up and down completely randomly.

Pair Corralation between RMB Holdings and Allied Electronics

Assuming the 90 days trading horizon RMB Holdings is expected to generate 1.97 times less return on investment than Allied Electronics. But when comparing it to its historical volatility, RMB Holdings is 1.01 times less risky than Allied Electronics. It trades about 0.09 of its potential returns per unit of risk. Allied Electronics is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  174,900  in Allied Electronics on September 24, 2024 and sell it today you would earn a total of  38,100  from holding Allied Electronics or generate 21.78% return on investment over 90 days.

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

RMB Holdings  vs.  Allied Electronics

RMB Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RMB Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, RMB Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Allied Electronics

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allied Electronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Allied Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RMB Holdings and Allied Electronics

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

The idea behind RMB Holdings and Allied Electronics 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.