Correlation Between General Dynamics and Rheinmetall

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

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

Diversification Opportunities for General Dynamics and Rheinmetall

0.19

Correlation Coefficient

General Dynamics  Rheinmetall

Average diversification

The 3 months correlation between General and Rheinmetall is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics 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 General Dynamics 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 General Dynamics 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 General Dynamics i.e., General Dynamics and Rheinmetall go up and down completely randomly.

Pair Corralation between General Dynamics and Rheinmetall

Allowing for the 90-day total investment horizon General Dynamics is expected to generate 25.94 times less return on investment than Rheinmetall. But when comparing it to its historical volatility, General Dynamics is 2.92 times less risky than Rheinmetall. It trades about 0.04 of its potential returns per unit of risk. Rheinmetall AG ADR is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  12,759  in Rheinmetall AG ADR on December 30, 2024 and sell it today you would earn a total of  15,489  from holding Rheinmetall AG ADR or generate 121.4% return on investment over 90 days.

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

General Dynamics  vs.  Rheinmetall AG ADR

General Dynamics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, General Dynamics is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Rheinmetall AG ADR

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG ADR are ranked lower than 26 (%) 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 General Dynamics and Rheinmetall

The main advantage of trading using opposite General Dynamics and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Dynamics 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 General Dynamics 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.