Correlation Between AeroVironment and Rolls Royce

Can any of the company-specific risk be diversified away by investing in both AeroVironment 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 AeroVironment and Rolls Royce 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 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. Check out your portfolio center. Please also check ongoing floating volatility patterns of AeroVironment and Rolls Royce.

Diversification Opportunities for AeroVironment and Rolls Royce

-0.41

Correlation Coefficient

AeroVironment  Rolls Royce

Very good diversification

The 3 months correlation between AeroVironment and Rolls is -0.41. 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. 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 go up and down completely randomly.

Pair Corralation between AeroVironment and Rolls Royce

Given the investment horizon of 90 days AeroVironment is expected to under-perform the Rolls Royce. In addition to that, AeroVironment is 2.07 times more volatile than Rolls Royce Holdings PLC. It trades about -0.1 of its total potential returns per unit of risk. Rolls Royce Holdings PLC is currently generating about 0.11 per unit of volatility. If you would invest  710.00  in Rolls Royce Holdings PLC on November 28, 2024 and sell it today you would earn a total of  76.00  from holding Rolls Royce Holdings PLC or generate 10.7% return on investment over 90 days.

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

AeroVironment  vs.  Rolls Royce Holdings PLC

AeroVironment

Risk-Adjusted Performance

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 March 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

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Rolls Royce may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with AeroVironment and Rolls Royce

The main advantage of trading using opposite AeroVironment and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AeroVironment 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 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.