Correlation Between Hensoldt and Rheinmetall

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

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

Diversification Opportunities for Hensoldt and Rheinmetall

0.5

Correlation Coefficient

Hensoldt  Rheinmetall

Very weak diversification

The 3 months correlation between Hensoldt and Rheinmetall is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Hensoldt AG 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 Hensoldt 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 Hensoldt AG 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 Hensoldt i.e., Hensoldt and Rheinmetall go up and down completely randomly.

Pair Corralation between Hensoldt and Rheinmetall

Assuming the 90 days horizon Hensoldt AG is expected to generate 1.2 times more return on investment than Rheinmetall. However, Hensoldt is 1.2 times more volatile than Rheinmetall AG ADR. It trades about 0.1 of its potential returns per unit of risk. Rheinmetall AG ADR is currently generating about 0.09 per unit of risk. If you would invest  3,375  in Hensoldt AG on September 12, 2024 and sell it today you would earn a total of  576.00  from holding Hensoldt AG or generate 17.07% return on investment over 90 days.

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

Hensoldt AG  vs.  Rheinmetall AG ADR

Hensoldt AG

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hensoldt AG are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Hensoldt reported solid returns over the last few months and may actually be approaching a breakup point.

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 Hensoldt and Rheinmetall

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