Correlation Between Rheinmetall and Baker Steel

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

By analyzing existing cross correlation between Rheinmetall AG and Baker Steel Resources, you can compare the effects of market volatilities on Rheinmetall and Baker Steel 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 Baker Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rheinmetall and Baker Steel.

Diversification Opportunities for Rheinmetall and Baker Steel

-0.86

Correlation Coefficient

Rheinmetall  Baker Steel

Pay attention - limited upside

The 3 months correlation between Rheinmetall and Baker is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and Baker Steel Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baker Steel Resources 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 Baker Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baker Steel Resources has no effect on the direction of Rheinmetall i.e., Rheinmetall and Baker Steel go up and down completely randomly.

Pair Corralation between Rheinmetall and Baker Steel

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 1.68 times more return on investment than Baker Steel. However, Rheinmetall is 1.68 times more volatile than Baker Steel Resources. It trades about 0.4 of its potential returns per unit of risk. Baker Steel Resources 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 Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Rheinmetall AG  vs.  Baker Steel Resources

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.

Baker Steel Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baker Steel Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Rheinmetall and Baker Steel

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

The idea behind Rheinmetall AG and Baker Steel Resources 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.