Correlation Between Rheinmetall and Micron Technology

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

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

Diversification Opportunities for Rheinmetall and Micron Technology

0.13

Correlation Coefficient

Rheinmetall  Micron Technology

Average diversification

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

Pair Corralation between Rheinmetall and Micron Technology

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 0.79 times more return on investment than Micron Technology. However, Rheinmetall AG is 1.27 times less risky than Micron Technology. It trades about 0.4 of its potential returns per unit of risk. Micron Technology is currently generating about 0.06 per unit of risk. 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

Rheinmetall AG  vs.  Micron Technology

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.

Micron Technology

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Micron Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Micron Technology unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rheinmetall and Micron Technology

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

The idea behind Rheinmetall AG and Micron Technology 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.