Correlation Between RH and Best Buy

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

Diversification Opportunities for RH and Best Buy

0.64
  Correlation Coefficient

Poor diversification

The 3 months correlation between RH and Best is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding RH and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy and RH 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 RH are associated (or correlated) with Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of RH i.e., RH and Best Buy go up and down completely randomly.

Pair Corralation between RH and Best Buy

Allowing for the 90-day total investment horizon RH is expected to generate 1.78 times more return on investment than Best Buy. However, RH is 1.78 times more volatile than Best Buy Co. It trades about 0.18 of its potential returns per unit of risk. Best Buy Co is currently generating about 0.13 per unit of risk. If you would invest  26,572  in RH on December 29, 2023 and sell it today you would earn a total of  3,127  from holding RH or generate 11.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

RH  vs.  Best Buy Co

 Performance 
       Timeline  
RH 

Risk-Adjusted Performance

1 of 100

 
Low
 
High
Very Weak
Compared to the overall equity markets, risk-adjusted returns on investments in RH are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, RH is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.
Best Buy 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Best Buy Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental drivers, Best Buy may actually be approaching a critical reversion point that can send shares even higher in April 2024.

RH and Best Buy Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with RH and Best Buy

The main advantage of trading using opposite RH and Best Buy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RH position performs unexpectedly, Best Buy 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 Best Buy will offset losses from the drop in Best Buy's long position.
The idea behind RH and Best Buy Co 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.
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 the Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.

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