Correlation Between AAR Corp and Rolls-Royce Holdings

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

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

Diversification Opportunities for AAR Corp and Rolls-Royce Holdings

0.13

Correlation Coefficient

AAR Corp  Rolls-Royce Holdings

Average diversification

The 3 months correlation between AAR and Rolls-Royce is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding AAR Corp 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 AAR Corp 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 AAR Corp are associated (or correlated) with Rolls-Royce Holdings. 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 AAR Corp i.e., AAR Corp and Rolls-Royce Holdings go up and down completely randomly.

Pair Corralation between AAR Corp and Rolls-Royce Holdings

Considering the 90-day investment horizon AAR Corp is expected to generate 0.44 times more return on investment than Rolls-Royce Holdings. However, AAR Corp is 2.3 times less risky than Rolls-Royce Holdings. It trades about -0.07 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about -0.06 per unit of risk. If you would invest  6,952  in AAR Corp on November 29, 2024 and sell it today you would lose (610.00) from holding AAR Corp or give up 8.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

AAR Corp  vs.  Rolls Royce Holdings plc

AAR Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days AAR Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Rolls Royce Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rolls Royce Holdings plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with AAR Corp and Rolls-Royce Holdings

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

The idea behind AAR Corp 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.