Correlation Between AeroVironment and Rolls-Royce Holdings

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

Diversification Opportunities for AeroVironment and Rolls-Royce Holdings

0.66

Correlation Coefficient

AeroVironment  Rolls-Royce Holdings

Poor diversification

The 3 months correlation between AeroVironment and Rolls-Royce is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding AeroVironment 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 AeroVironment 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 AeroVironment 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 AeroVironment i.e., AeroVironment and Rolls-Royce Holdings go up and down completely randomly.

Pair Corralation between AeroVironment and Rolls-Royce Holdings

Given the investment horizon of 90 days AeroVironment is expected to under-perform the Rolls-Royce Holdings. But the stock apears to be less risky and, when comparing its historical volatility, AeroVironment is 1.28 times less risky than Rolls-Royce Holdings. The stock trades about -0.09 of its potential returns per unit of risk. The Rolls Royce Holdings plc is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  0.37  in Rolls Royce Holdings plc on October 26, 2024 and sell it today you would lose (0.07) from holding Rolls Royce Holdings plc or give up 18.92% of portfolio value over 90 days.

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

AeroVironment  vs.  Rolls Royce Holdings plc

AeroVironment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AeroVironment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

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 fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with AeroVironment and Rolls-Royce Holdings

The main advantage of trading using opposite AeroVironment and Rolls-Royce Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AeroVironment 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 AeroVironment 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.