Correlation Between CVR Energy and Rheinmetall

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

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

Diversification Opportunities for CVR Energy and Rheinmetall

0.2

Correlation Coefficient

CVR Energy  Rheinmetall

Modest diversification

The 3 months correlation between CVR and Rheinmetall is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding CVR Energy and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG and CVR Energy 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 CVR Energy are associated (or correlated) with Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG has no effect on the direction of CVR Energy i.e., CVR Energy and Rheinmetall go up and down completely randomly.

Pair Corralation between CVR Energy and Rheinmetall

Assuming the 90 days trading horizon CVR Energy is expected to generate 5.0 times less return on investment than Rheinmetall. But when comparing it to its historical volatility, CVR Energy is 1.09 times less risky than Rheinmetall. It trades about 0.09 of its potential returns per unit of risk. Rheinmetall AG is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  61,900  in Rheinmetall AG on December 25, 2024 and sell it today you would earn a total of  69,850  from holding Rheinmetall AG or generate 112.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.08%
Values	Daily Returns

CVR Energy  vs.  Rheinmetall AG

CVR Energy

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CVR Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CVR Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rheinmetall AG

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Rheinmetall unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CVR Energy and Rheinmetall

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

The idea behind CVR Energy and Rheinmetall AG 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.