Correlation Between Rentokil Initial and DLH Holdings

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

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

Diversification Opportunities for Rentokil Initial and DLH Holdings

-0.2

Correlation Coefficient

Rentokil Initial  DLH Holdings

Good diversification

The 3 months correlation between Rentokil and DLH is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Rentokil Initial PLC and DLH Holdings Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DLH Holdings Corp and Rentokil Initial 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 Rentokil Initial PLC are associated (or correlated) with DLH Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DLH Holdings Corp has no effect on the direction of Rentokil Initial i.e., Rentokil Initial and DLH Holdings go up and down completely randomly.

Pair Corralation between Rentokil Initial and DLH Holdings

Considering the 90-day investment horizon Rentokil Initial PLC is expected to generate 0.55 times more return on investment than DLH Holdings. However, Rentokil Initial PLC is 1.82 times less risky than DLH Holdings. It trades about 0.03 of its potential returns per unit of risk. DLH Holdings Corp is currently generating about -0.27 per unit of risk. If you would invest  2,554  in Rentokil Initial PLC on November 29, 2024 and sell it today you would earn a total of  41.00  from holding Rentokil Initial PLC or generate 1.61% return on investment over 90 days.

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

Rentokil Initial PLC  vs.  DLH Holdings Corp

Rentokil Initial PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rentokil Initial PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Rentokil Initial is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

DLH Holdings Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days DLH Holdings Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Rentokil Initial and DLH Holdings

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

The idea behind Rentokil Initial PLC and DLH Holdings Corp 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.