Correlation Between Sonic Healthcare and Red Hill

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

By analyzing existing cross correlation between Sonic Healthcare and Red Hill Iron, you can compare the effects of market volatilities on Sonic Healthcare and Red Hill 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 Sonic Healthcare with a short position of Red Hill. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sonic Healthcare and Red Hill.

Diversification Opportunities for Sonic Healthcare and Red Hill

0.63

Correlation Coefficient

Sonic Healthcare  Red Hill

Poor diversification

The 3 months correlation between Sonic and Red is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sonic Healthcare and Red Hill Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Hill Iron and Sonic Healthcare 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 Sonic Healthcare are associated (or correlated) with Red Hill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Hill Iron has no effect on the direction of Sonic Healthcare i.e., Sonic Healthcare and Red Hill go up and down completely randomly.

Pair Corralation between Sonic Healthcare and Red Hill

Assuming the 90 days trading horizon Sonic Healthcare is expected to generate 3.33 times less return on investment than Red Hill. But when comparing it to its historical volatility, Sonic Healthcare is 1.46 times less risky than Red Hill. It trades about 0.03 of its potential returns per unit of risk. Red Hill Iron is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  391.00  in Red Hill Iron on October 8, 2024 and sell it today you would earn a total of  23.00  from holding Red Hill Iron or generate 5.88% return on investment over 90 days.

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

Sonic Healthcare  vs.  Red Hill Iron

Sonic Healthcare

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sonic Healthcare are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Sonic Healthcare is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Red Hill Iron

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Red Hill Iron are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, Red Hill unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sonic Healthcare and Red Hill

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

The idea behind Sonic Healthcare and Red Hill Iron 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.