Correlation Between Geberit AG and Rolls-Royce Holdings

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

Diversification Opportunities for Geberit AG and Rolls-Royce Holdings

0.15

Correlation Coefficient

Geberit AG  Rolls-Royce Holdings

Average diversification

The 3 months correlation between Geberit and Rolls-Royce is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Geberit AG 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 Geberit AG 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 Geberit AG 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 Geberit AG i.e., Geberit AG and Rolls-Royce Holdings go up and down completely randomly.

Pair Corralation between Geberit AG and Rolls-Royce Holdings

Assuming the 90 days trading horizon Geberit AG is expected to generate 5.57 times less return on investment than Rolls-Royce Holdings. But when comparing it to its historical volatility, Geberit AG is 1.38 times less risky than Rolls-Royce Holdings. It trades about 0.1 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  715.00  in Rolls Royce Holdings plc on December 5, 2024 and sell it today you would earn a total of  288.00  from holding Rolls Royce Holdings plc or generate 40.28% return on investment over 90 days.

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

Geberit AG  vs.  Rolls Royce Holdings plc

Geberit AG

Risk-Adjusted Performance

Very Weak

Over the last 90 days Geberit AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Geberit AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Rolls Royce Holdings

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings plc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Rolls-Royce Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Geberit AG and Rolls-Royce Holdings

The main advantage of trading using opposite Geberit AG and Rolls-Royce Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Geberit AG 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 Geberit AG 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.