Correlation Between Nine Dragons and Rolls Royce

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

By analyzing existing cross correlation between Nine Dragons Paper and Rolls Royce Holdings plc, you can compare the effects of market volatilities on Nine Dragons and Rolls Royce 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 Nine Dragons with a short position of Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nine Dragons and Rolls Royce.

Diversification Opportunities for Nine Dragons and Rolls Royce

0.45

Correlation Coefficient

Nine Dragons  Rolls Royce

Very weak diversification

The 3 months correlation between Nine and Rolls is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Nine Dragons Paper 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 Nine Dragons 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 Nine Dragons Paper are associated (or correlated) with Rolls Royce. 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 Nine Dragons i.e., Nine Dragons and Rolls Royce go up and down completely randomly.

Pair Corralation between Nine Dragons and Rolls Royce

Assuming the 90 days horizon Nine Dragons is expected to generate 8.39 times less return on investment than Rolls Royce. But when comparing it to its historical volatility, Nine Dragons Paper is 1.25 times less risky than Rolls Royce. It trades about 0.03 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  701.00  in Rolls Royce Holdings plc on December 27, 2024 and sell it today you would earn a total of  293.00  from holding Rolls Royce Holdings plc or generate 41.8% return on investment over 90 days.

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

Nine Dragons Paper  vs.  Rolls Royce Holdings plc

Nine Dragons Paper

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nine Dragons Paper are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Nine Dragons is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Rolls Royce Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings plc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Rolls Royce reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nine Dragons and Rolls Royce

The main advantage of trading using opposite Nine Dragons and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nine Dragons position performs unexpectedly, Rolls Royce 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 will offset losses from the drop in Rolls Royce's long position.

The idea behind Nine Dragons Paper 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.