Correlation Between Rheinmetall and Metals Exploration

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

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

Diversification Opportunities for Rheinmetall and Metals Exploration

-0.32

Correlation Coefficient

Rheinmetall  Metals Exploration

Very good diversification

The 3 months correlation between Rheinmetall and Metals is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and Metals Exploration Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metals Exploration 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 Metals Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metals Exploration Plc has no effect on the direction of Rheinmetall i.e., Rheinmetall and Metals Exploration go up and down completely randomly.

Pair Corralation between Rheinmetall and Metals Exploration

Assuming the 90 days trading horizon Rheinmetall is expected to generate 1.07 times less return on investment than Metals Exploration. But when comparing it to its historical volatility, Rheinmetall AG is 1.56 times less risky than Metals Exploration. It trades about 0.16 of its potential returns per unit of risk. Metals Exploration Plc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  485.00  in Metals Exploration Plc on October 7, 2024 and sell it today you would earn a total of  105.00  from holding Metals Exploration Plc or generate 21.65% 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.  Metals Exploration Plc

Rheinmetall AG

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 12 (%) 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.

Metals Exploration Plc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Metals Exploration Plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Metals Exploration exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rheinmetall and Metals Exploration

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

The idea behind Rheinmetall AG and Metals Exploration 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.