Correlation Between Rheinmetall and Bellway PLC

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

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

Diversification Opportunities for Rheinmetall and Bellway PLC

-0.87

Correlation Coefficient

Rheinmetall  Bellway PLC

Pay attention - limited upside

The 3 months correlation between Rheinmetall and Bellway is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and Bellway PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bellway PLC 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 Bellway PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bellway PLC has no effect on the direction of Rheinmetall i.e., Rheinmetall and Bellway PLC go up and down completely randomly.

Pair Corralation between Rheinmetall and Bellway PLC

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 1.32 times more return on investment than Bellway PLC. However, Rheinmetall is 1.32 times more volatile than Bellway PLC. It trades about 0.08 of its potential returns per unit of risk. Bellway PLC is currently generating about -0.38 per unit of risk. If you would invest  63,002  in Rheinmetall AG on October 10, 2024 and sell it today you would earn a total of  1,718  from holding Rheinmetall AG or generate 2.73% 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.  Bellway PLC

Rheinmetall AG

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rheinmetall unveiled solid returns over the last few months and may actually be approaching a breakup point.

Bellway PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bellway PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Rheinmetall and Bellway PLC

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

The idea behind Rheinmetall AG and Bellway PLC 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.