Correlation Between Rheinmetall and CTP NV

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

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

Diversification Opportunities for Rheinmetall and CTP NV

0.6

Correlation Coefficient

Rheinmetall  CTP NV

Poor diversification

The 3 months correlation between Rheinmetall and CTP is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and CTP NV EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTP NV EO and Rheinmetall 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 Rheinmetall AG are associated (or correlated) with CTP NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTP NV EO has no effect on the direction of Rheinmetall i.e., Rheinmetall and CTP NV go up and down completely randomly.

Pair Corralation between Rheinmetall and CTP NV

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 2.65 times more return on investment than CTP NV. However, Rheinmetall is 2.65 times more volatile than CTP NV EO. It trades about 0.32 of its potential returns per unit of risk. CTP NV EO is currently generating about 0.15 per unit of risk. If you would invest  62,100  in Rheinmetall AG on December 21, 2024 and sell it today you would earn a total of  67,400  from holding Rheinmetall AG or generate 108.53% return on investment over 90 days.

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

Rheinmetall AG  vs.  CTP NV EO

Rheinmetall AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, Rheinmetall exhibited solid returns over the last few months and may actually be approaching a breakup point.

CTP NV EO

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CTP NV EO are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CTP NV reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rheinmetall and CTP NV

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

The idea behind Rheinmetall AG and CTP NV EO 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.