Correlation Between Heico and Rheinmetall

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

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

Diversification Opportunities for Heico and Rheinmetall

0.59

Correlation Coefficient

Heico  Rheinmetall

Very weak diversification

The 3 months correlation between Heico and Rheinmetall is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Heico 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 Heico 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 Heico 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 Heico i.e., Heico and Rheinmetall go up and down completely randomly.

Pair Corralation between Heico and Rheinmetall

Considering the 90-day investment horizon Heico is expected to generate 22.99 times less return on investment than Rheinmetall. But when comparing it to its historical volatility, Heico is 1.62 times less risky than Rheinmetall. It trades about 0.01 of its potential returns per unit of risk. Rheinmetall AG ADR is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  11,515  in Rheinmetall AG ADR on September 12, 2024 and sell it today you would earn a total of  1,442  from holding Rheinmetall AG ADR or generate 12.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Heico  vs.  Rheinmetall AG ADR

Heico

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heico has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Heico is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Rheinmetall AG ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG ADR are ranked lower than 7 (%) 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 Heico and Rheinmetall

The main advantage of trading using opposite Heico and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heico 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 Heico 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .