Correlation Between Aerojet Rocketdyne and Rolls-Royce Holdings

Can any of the company-specific risk be diversified away by investing in both Aerojet Rocketdyne 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 Aerojet Rocketdyne 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 Aerojet Rocketdyne Holdings and Rolls Royce Holdings plc, you can compare the effects of market volatilities on Aerojet Rocketdyne 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 Aerojet Rocketdyne with a short position of Rolls-Royce Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerojet Rocketdyne and Rolls-Royce Holdings.

Diversification Opportunities for Aerojet Rocketdyne and Rolls-Royce Holdings

0.06

Correlation Coefficient

Aerojet Rocketdyne  Rolls-Royce Holdings

Significant diversification

The 3 months correlation between Aerojet and Rolls-Royce is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Aerojet Rocketdyne Holdings 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 Aerojet Rocketdyne 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 Aerojet Rocketdyne Holdings 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 Aerojet Rocketdyne i.e., Aerojet Rocketdyne and Rolls-Royce Holdings go up and down completely randomly.

Pair Corralation between Aerojet Rocketdyne and Rolls-Royce Holdings

If you would invest  0.29  in Rolls Royce Holdings plc on October 27, 2024 and sell it today you would earn a total of  0.02  from holding Rolls Royce Holdings plc or generate 6.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	5.0%
Values	Daily Returns

Aerojet Rocketdyne Holdings  vs.  Rolls Royce Holdings plc

Aerojet Rocketdyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aerojet Rocketdyne Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Aerojet Rocketdyne is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Rolls Royce Holdings

Risk-Adjusted Performance

0 of 100

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 latest fragile performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Aerojet Rocketdyne and Rolls-Royce Holdings

The main advantage of trading using opposite Aerojet Rocketdyne and Rolls-Royce Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aerojet Rocketdyne 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 Aerojet Rocketdyne Holdings 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.