Correlation Between National Bank and Rolls Royce

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

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

Diversification Opportunities for National Bank and Rolls Royce

-0.84

Correlation Coefficient

National Bank  Rolls Royce

Pay attention - limited upside

The 3 months correlation between National and Rolls is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings 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 National Bank 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 National Bank Holdings 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 National Bank i.e., National Bank and Rolls Royce go up and down completely randomly.

Pair Corralation between National Bank and Rolls Royce

Assuming the 90 days horizon National Bank Holdings is expected to under-perform the Rolls Royce. But the stock apears to be less risky and, when comparing its historical volatility, National Bank Holdings is 1.96 times less risky than Rolls Royce. The stock trades about -0.11 of its potential returns per unit of risk. The 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 Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

National Bank Holdings  vs.  Rolls Royce Holdings plc

National Bank Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Bank Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company 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 National Bank and Rolls Royce

The main advantage of trading using opposite National Bank and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank 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 National Bank Holdings 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.