Correlation Between Rave Restaurant and Rolls Royce

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Can any of the company-specific risk be diversified away by investing in both Rave Restaurant and Rolls Royce 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 Rave Restaurant and Rolls Royce into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rave Restaurant Group and Rolls Royce Grp, you can compare the effects of market volatilities on Rave Restaurant and Rolls Royce 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 Rave Restaurant with a short position of Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rave Restaurant and Rolls Royce.

Diversification Opportunities for Rave Restaurant and Rolls Royce

0.13
  Correlation Coefficient

Average diversification

The 3 months correlation between Rave Restaurant and Rolls is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Rave Restaurant Group and Rolls Royce Grp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Grp and Rave Restaurant 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 Rave Restaurant Group are associated (or correlated) with Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Grp has no effect on the direction of Rave Restaurant i.e., Rave Restaurant and Rolls Royce go up and down completely randomly.

Pair Corralation between Rave Restaurant and Rolls Royce

Given the investment horizon of 90 days Rave Restaurant Group is expected to generate 1.12 times more return on investment than Rolls Royce. However, Rave Restaurant is 1.12 times more volatile than Rolls Royce Grp. It trades about 0.06 of its potential returns per unit of risk. Rolls Royce Grp is currently generating about -0.04 per unit of risk. If you would invest  113.00  in Rave Restaurant Group on August 29, 2022 and sell it today you would earn a total of  49.00  from holding Rave Restaurant Group or generate 43.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Rave Restaurant Group  vs.  Rolls Royce Grp

 Performance (%) 
       Timeline  
Rave Restaurant Group 
Rave Restaurant Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Rave Restaurant Group are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Rave Restaurant exhibited solid returns over the last few months and may actually be approaching a breakup point.

Rave Restaurant Price Channel

Rolls Royce Grp 
Rolls Performance
0 of 100
Over the last 90 days Rolls Royce Grp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak technical and fundamental indicators, Rolls Royce showed solid returns over the last few months and may actually be approaching a breakup point.

Rave Restaurant and Rolls Royce Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Rave Restaurant and Rolls Royce

The main advantage of trading using opposite Rave Restaurant and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rave Restaurant position performs unexpectedly, Rolls Royce 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 Rolls Royce will offset losses from the drop in Rolls Royce's long position.
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The idea behind Rave Restaurant Group and Rolls Royce Grp 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.
The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Rolls Royce as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Rolls Royce's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Rolls Royce's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Rolls Royce Grp.
Check out your portfolio center. 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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