Correlation Between Rheinmetall and LBG Media

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

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

Diversification Opportunities for Rheinmetall and LBG Media

-0.58

Correlation Coefficient

Rheinmetall  LBG Media

Excellent diversification

The 3 months correlation between Rheinmetall and LBG is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and LBG Media PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LBG Media 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 LBG Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LBG Media PLC has no effect on the direction of Rheinmetall i.e., Rheinmetall and LBG Media go up and down completely randomly.

Pair Corralation between Rheinmetall and LBG Media

Assuming the 90 days trading horizon Rheinmetall is expected to generate 1.0 times less return on investment than LBG Media. But when comparing it to its historical volatility, Rheinmetall AG is 1.36 times less risky than LBG Media. It trades about 0.14 of its potential returns per unit of risk. LBG Media PLC is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  12,400  in LBG Media PLC on October 12, 2024 and sell it today you would earn a total of  600.00  from holding LBG Media PLC or generate 4.84% return on investment over 90 days.

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

Rheinmetall AG  vs.  LBG Media 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.

LBG Media PLC

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days LBG Media PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, LBG Media is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Rheinmetall and LBG Media

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

The idea behind Rheinmetall AG and LBG Media 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.