Correlation Between Cap ISR and Rolls Royce

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

By analyzing existing cross correlation between Cap ISR Actions and Rolls Royce Holdings plc, you can compare the effects of market volatilities on Cap ISR and Rolls Royce 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 Cap ISR with a short position of Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cap ISR and Rolls Royce.

Diversification Opportunities for Cap ISR and Rolls Royce

-0.25

Correlation Coefficient

Cap ISR  Rolls Royce

Very good diversification

The 3 months correlation between Cap and Rolls is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Cap ISR Actions and Rolls Royce Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings and Cap ISR 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 Cap ISR Actions are associated (or correlated) with Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of Cap ISR i.e., Cap ISR and Rolls Royce go up and down completely randomly.

Pair Corralation between Cap ISR and Rolls Royce

Assuming the 90 days trading horizon Cap ISR is expected to generate 2.5 times less return on investment than Rolls Royce. But when comparing it to its historical volatility, Cap ISR Actions is 2.01 times less risky than Rolls Royce. It trades about 0.18 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  658.00  in Rolls Royce Holdings plc on September 22, 2024 and sell it today you would earn a total of  45.00  from holding Rolls Royce Holdings plc or generate 6.84% return on investment over 90 days.

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

Cap ISR Actions  vs.  Rolls Royce Holdings plc

Cap ISR Actions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cap ISR Actions has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, Cap ISR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Rolls Royce Holdings

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Rolls Royce may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cap ISR and Rolls Royce

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

The idea behind Cap ISR Actions and Rolls Royce Holdings 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.