Correlation Between RMB Holdings and Foschini

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

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

Diversification Opportunities for RMB Holdings and Foschini

0.71

Correlation Coefficient

RMB Holdings  Foschini

Poor diversification

The 3 months correlation between RMB and Foschini is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding RMB Holdings and Foschini Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foschini Group 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 Foschini. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foschini Group has no effect on the direction of RMB Holdings i.e., RMB Holdings and Foschini go up and down completely randomly.

Pair Corralation between RMB Holdings and Foschini

Assuming the 90 days trading horizon RMB Holdings is expected to generate 3.13 times less return on investment than Foschini. But when comparing it to its historical volatility, RMB Holdings is 1.09 times less risky than Foschini. It trades about 0.07 of its potential returns per unit of risk. Foschini Group is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,473,000  in Foschini Group on September 23, 2024 and sell it today you would earn a total of  251,000  from holding Foschini Group or generate 17.04% 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.  Foschini Group

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.

Foschini Group

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foschini Group 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, Foschini may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with RMB Holdings and Foschini

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

The idea behind RMB Holdings and Foschini Group 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .