Correlation Between JD Sports and Rheinmetall

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

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

Diversification Opportunities for JD Sports and Rheinmetall

-0.84

Correlation Coefficient

JD Sports  Rheinmetall

Pay attention - limited upside

The 3 months correlation between JD Sports and Rheinmetall is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding JD Sports Fashion and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG and JD Sports 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 JD Sports Fashion 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 has no effect on the direction of JD Sports i.e., JD Sports and Rheinmetall go up and down completely randomly.

Pair Corralation between JD Sports and Rheinmetall

Assuming the 90 days trading horizon JD Sports Fashion is expected to under-perform the Rheinmetall. But the stock apears to be less risky and, when comparing its historical volatility, JD Sports Fashion is 1.28 times less risky than Rheinmetall. The stock trades about -0.14 of its potential returns per unit of risk. The Rheinmetall AG is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  61,900  in Rheinmetall AG on December 26, 2024 and sell it today you would earn a total of  69,875  from holding Rheinmetall AG or generate 112.88% return on investment over 90 days.

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

JD Sports Fashion  vs.  Rheinmetall AG

JD Sports Fashion

Risk-Adjusted Performance

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Rheinmetall AG

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rheinmetall unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with JD Sports and Rheinmetall

The main advantage of trading using opposite JD Sports and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JD Sports 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 JD Sports Fashion and Rheinmetall AG 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.