Correlation Between State Bank and Rockwood Realisation

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

By analyzing existing cross correlation between State Bank of and Rockwood Realisation PLC, you can compare the effects of market volatilities on State Bank and Rockwood Realisation 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 State Bank with a short position of Rockwood Realisation. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Bank and Rockwood Realisation.

Diversification Opportunities for State Bank and Rockwood Realisation

0.16

Correlation Coefficient

State Bank  Rockwood Realisation

Average diversification

The 3 months correlation between State and Rockwood is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Rockwood Realisation PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockwood Realisation PLC and State Bank 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 State Bank of are associated (or correlated) with Rockwood Realisation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockwood Realisation PLC has no effect on the direction of State Bank i.e., State Bank and Rockwood Realisation go up and down completely randomly.

Pair Corralation between State Bank and Rockwood Realisation

Assuming the 90 days trading horizon State Bank is expected to generate 1.7 times less return on investment than Rockwood Realisation. In addition to that, State Bank is 1.73 times more volatile than Rockwood Realisation PLC. It trades about 0.04 of its total potential returns per unit of risk. Rockwood Realisation PLC is currently generating about 0.11 per unit of volatility. If you would invest  15,050  in Rockwood Realisation PLC on September 28, 2024 and sell it today you would earn a total of  11,200  from holding Rockwood Realisation PLC or generate 74.42% return on investment over 90 days.

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

State Bank of  vs.  Rockwood Realisation PLC

State Bank

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days State Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, State Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Rockwood Realisation PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rockwood Realisation PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Rockwood Realisation is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with State Bank and Rockwood Realisation

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

The idea behind State Bank of and Rockwood Realisation PLC 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.