Correlation Between Rheinmetall and Ibstock PLC

Can any of the company-specific risk be diversified away by investing in both Rheinmetall and Ibstock 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 Ibstock 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 Ibstock PLC, you can compare the effects of market volatilities on Rheinmetall and Ibstock 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 Ibstock PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rheinmetall and Ibstock PLC.

Diversification Opportunities for Rheinmetall and Ibstock PLC

-0.13

Correlation Coefficient

Rheinmetall  Ibstock PLC

Good diversification

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

Pair Corralation between Rheinmetall and Ibstock PLC

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 1.5 times more return on investment than Ibstock PLC. However, Rheinmetall is 1.5 times more volatile than Ibstock PLC. It trades about 0.4 of its potential returns per unit of risk. Ibstock PLC is currently generating about 0.0 per unit of risk. If you would invest  61,900  in Rheinmetall AG on December 26, 2024 and sell it today you would earn a total of  73,900  from holding Rheinmetall AG or generate 119.39% return on investment over 90 days.

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

Rheinmetall AG  vs.  Ibstock PLC

Rheinmetall AG

Risk-Adjusted Performance

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 uncertain basic indicators, Rheinmetall unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ibstock PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ibstock PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Ibstock PLC is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Rheinmetall and Ibstock PLC

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

The idea behind Rheinmetall AG and Ibstock 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.