Correlation Between Astronics and Rolls Royce

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

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

Diversification Opportunities for Astronics and Rolls Royce

0.29

Correlation Coefficient

Astronics  Rolls Royce

Modest diversification

The 3 months correlation between Astronics and Rolls is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Astronics and Rolls Royce Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings and Astronics 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 Astronics 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 Astronics i.e., Astronics and Rolls Royce go up and down completely randomly.

Pair Corralation between Astronics and Rolls Royce

Given the investment horizon of 90 days Astronics is expected to generate 1.51 times less return on investment than Rolls Royce. But when comparing it to its historical volatility, Astronics is 1.4 times less risky than Rolls Royce. It trades about 0.18 of its potential returns per unit of risk. Rolls Royce Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  725.00  in Rolls Royce Holdings on December 2, 2024 and sell it today you would earn a total of  235.00  from holding Rolls Royce Holdings or generate 32.41% return on investment over 90 days.

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

Astronics  vs.  Rolls Royce Holdings

Astronics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Astronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Astronics displayed solid returns over the last few months and may actually be approaching a breakup point.

Rolls Royce Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Rolls Royce showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Astronics and Rolls Royce

The main advantage of trading using opposite Astronics and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Astronics 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 Astronics and Rolls Royce Holdings 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.