Correlation Between RMB Holdings and RCL Foods

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

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

Diversification Opportunities for RMB Holdings and RCL Foods

0.45

Correlation Coefficient

RMB Holdings  RCL Foods

Very weak diversification

The 3 months correlation between RMB and RCL is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding RMB Holdings and RCL Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCL Foods 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 RCL Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCL Foods has no effect on the direction of RMB Holdings i.e., RMB Holdings and RCL Foods go up and down completely randomly.

Pair Corralation between RMB Holdings and RCL Foods

Assuming the 90 days trading horizon RMB Holdings is expected to generate 2.09 times less return on investment than RCL Foods. But when comparing it to its historical volatility, RMB Holdings is 1.14 times less risky than RCL Foods. It trades about 0.08 of its potential returns per unit of risk. RCL Foods is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  93,000  in RCL Foods on October 11, 2024 and sell it today you would earn a total of  4,900  from holding RCL Foods or generate 5.27% return on investment over 90 days.

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

RMB Holdings  vs.  RCL Foods

RMB Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RMB Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, RMB Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

RCL Foods

Risk-Adjusted Performance

7 of 100

Modest

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

Pair Trading with RMB Holdings and RCL Foods

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

The idea behind RMB Holdings and RCL Foods 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 Stocks Directory module to find actively traded stocks across global markets.