Correlation Between RMB Holdings and Firstrand

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

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

Diversification Opportunities for RMB Holdings and Firstrand

-0.33

Correlation Coefficient

RMB Holdings  Firstrand

Very good diversification

The 3 months correlation between RMB and Firstrand is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding RMB Holdings and Firstrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firstrand 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 Firstrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firstrand has no effect on the direction of RMB Holdings i.e., RMB Holdings and Firstrand go up and down completely randomly.

Pair Corralation between RMB Holdings and Firstrand

Assuming the 90 days trading horizon RMB Holdings is expected to generate 1.72 times less return on investment than Firstrand. In addition to that, RMB Holdings is 1.23 times more volatile than Firstrand. It trades about 0.04 of its total potential returns per unit of risk. Firstrand is currently generating about 0.08 per unit of volatility. If you would invest  633,135  in Firstrand on September 24, 2024 and sell it today you would earn a total of  137,765  from holding Firstrand or generate 21.76% return on investment over 90 days.

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

RMB Holdings  vs.  Firstrand

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.

Firstrand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Firstrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with RMB Holdings and Firstrand

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

The idea behind RMB Holdings and Firstrand 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.

Check out your portfolio center.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.