Correlation Between WD 40 and Reynolds Consumer

Can any of the company-specific risk be diversified away by investing in both WD 40 and Reynolds Consumer 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 WD 40 and Reynolds Consumer into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between WD 40 Company and Reynolds Consumer Products, you can compare the effects of market volatilities on WD 40 and Reynolds Consumer 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 WD 40 with a short position of Reynolds Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of WD 40 and Reynolds Consumer.

Diversification Opportunities for WD 40 and Reynolds Consumer

0.03

Correlation Coefficient

WD 40  Reynolds Consumer

Significant diversification

The 3 months correlation between WDFC and Reynolds is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding WD 40 Company and Reynolds Consumer Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reynolds Consumer and WD 40 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 WD 40 Company are associated (or correlated) with Reynolds Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reynolds Consumer has no effect on the direction of WD 40 i.e., WD 40 and Reynolds Consumer go up and down completely randomly.

Pair Corralation between WD 40 and Reynolds Consumer

Given the investment horizon of 90 days WD 40 Company is expected to generate 0.95 times more return on investment than Reynolds Consumer. However, WD 40 Company is 1.05 times less risky than Reynolds Consumer. It trades about 0.01 of its potential returns per unit of risk. Reynolds Consumer Products is currently generating about -0.1 per unit of risk. If you would invest  24,108  in WD 40 Company on December 28, 2024 and sell it today you would earn a total of  76.00  from holding WD 40 Company or generate 0.32% return on investment over 90 days.

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

WD 40 Company  vs.  Reynolds Consumer Products

WD 40 Company

Risk-Adjusted Performance

Weak

Over the last 90 days WD 40 Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, WD 40 is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Reynolds Consumer

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reynolds Consumer Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with WD 40 and Reynolds Consumer

The main advantage of trading using opposite WD 40 and Reynolds Consumer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WD 40 position performs unexpectedly, Reynolds Consumer 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 Reynolds Consumer will offset losses from the drop in Reynolds Consumer's long position.

The idea behind WD 40 Company and Reynolds Consumer Products 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.