Correlation Between BWX Technologies and Rolls Royce

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

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

Diversification Opportunities for BWX Technologies and Rolls Royce

-0.77

Correlation Coefficient

BWX Technologies  Rolls Royce

Pay attention - limited upside

The 3 months correlation between BWX and Rolls is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding BWX Technologies 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 BWX Technologies 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 BWX Technologies 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 BWX Technologies i.e., BWX Technologies and Rolls Royce go up and down completely randomly.

Pair Corralation between BWX Technologies and Rolls Royce

Given the investment horizon of 90 days BWX Technologies is expected to under-perform the Rolls Royce. But the stock apears to be less risky and, when comparing its historical volatility, BWX Technologies is 1.22 times less risky than Rolls Royce. The stock trades about -0.03 of its potential returns per unit of risk. The Rolls Royce Holdings is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  727.00  in Rolls Royce Holdings on December 27, 2024 and sell it today you would earn a total of  319.00  from holding Rolls Royce Holdings or generate 43.88% return on investment over 90 days.

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

BWX Technologies  vs.  Rolls Royce Holdings

BWX Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days BWX Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BWX Technologies is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Rolls Royce Holdings

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings are ranked lower than 16 (%) 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 BWX Technologies and Rolls Royce

The main advantage of trading using opposite BWX Technologies and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BWX Technologies 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 BWX Technologies 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.