Correlation Between LINK and RIF

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

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

Diversification Opportunities for LINK and RIF

0.64

Correlation Coefficient

LINK  RIF

Poor diversification

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

Pair Corralation between LINK and RIF

Assuming the 90 days trading horizon LINK is expected to generate 1.17 times less return on investment than RIF. In addition to that, LINK is 1.1 times more volatile than RIF. It trades about 0.09 of its total potential returns per unit of risk. RIF is currently generating about 0.12 per unit of volatility. If you would invest  4.73  in RIF on April 25, 2025 and sell it today you would earn a total of  1.42  from holding RIF or generate 30.02% return on investment over 90 days.

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

LINK  vs.  RIF

LINK

Risk-Adjusted Performance

OK

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

RIF

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RIF are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, RIF exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LINK and RIF

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

The idea behind LINK and RIF 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.