Correlation Between AeroVironment and Rheinmetall

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

By analyzing existing cross correlation between AeroVironment and Rheinmetall AG ADR, you can compare the effects of market volatilities on AeroVironment and Rheinmetall 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 Rheinmetall. Check out your portfolio center. Please also check ongoing floating volatility patterns of AeroVironment and Rheinmetall.

Diversification Opportunities for AeroVironment and Rheinmetall

-0.37

Correlation Coefficient

AeroVironment  Rheinmetall

Very good diversification

The 3 months correlation between AeroVironment and Rheinmetall is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding AeroVironment and Rheinmetall AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG ADR 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 Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG ADR has no effect on the direction of AeroVironment i.e., AeroVironment and Rheinmetall go up and down completely randomly.

Pair Corralation between AeroVironment and Rheinmetall

Given the investment horizon of 90 days AeroVironment is expected to generate 1.94 times less return on investment than Rheinmetall. In addition to that, AeroVironment is 1.42 times more volatile than Rheinmetall AG ADR. It trades about 0.04 of its total potential returns per unit of risk. Rheinmetall AG ADR is currently generating about 0.11 per unit of volatility. If you would invest  11,433  in Rheinmetall AG ADR on September 5, 2024 and sell it today you would earn a total of  1,701  from holding Rheinmetall AG ADR or generate 14.88% return on investment over 90 days.

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

AeroVironment  vs.  Rheinmetall AG ADR

AeroVironment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AeroVironment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, AeroVironment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rheinmetall AG ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Rheinmetall showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AeroVironment and Rheinmetall

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

The idea behind AeroVironment and Rheinmetall AG ADR 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.