Correlation Between Rheinmetall and Gamma Communications

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

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

Diversification Opportunities for Rheinmetall and Gamma Communications

-0.4

Correlation Coefficient

Rheinmetall  Gamma Communications

Very good diversification

The 3 months correlation between Rheinmetall and Gamma is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and Gamma Communications PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamma Communications 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 Gamma Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gamma Communications PLC has no effect on the direction of Rheinmetall i.e., Rheinmetall and Gamma Communications go up and down completely randomly.

Pair Corralation between Rheinmetall and Gamma Communications

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 1.43 times more return on investment than Gamma Communications. However, Rheinmetall is 1.43 times more volatile than Gamma Communications PLC. It trades about -0.07 of its potential returns per unit of risk. Gamma Communications PLC is currently generating about -0.41 per unit of risk. If you would invest  63,002  in Rheinmetall AG on October 10, 2024 and sell it today you would lose (1,542) from holding Rheinmetall AG or give up 2.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Rheinmetall AG  vs.  Gamma Communications PLC

Rheinmetall AG

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 15 (%) 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.

Gamma Communications PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gamma Communications PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady 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 Gamma Communications

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

The idea behind Rheinmetall AG and Gamma Communications 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.

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.