Correlation Between Rheinmetall and Option Care

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

By analyzing existing cross correlation between Rheinmetall AG and Option Care Health, you can compare the effects of market volatilities on Rheinmetall and Option Care 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 Option Care. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rheinmetall and Option Care.

Diversification Opportunities for Rheinmetall and Option Care

-0.64

Correlation Coefficient

Rheinmetall  Option Care

Excellent diversification

The 3 months correlation between Rheinmetall and Option is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and Option Care Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Option Care Health 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 Option Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Option Care Health has no effect on the direction of Rheinmetall i.e., Rheinmetall and Option Care go up and down completely randomly.

Pair Corralation between Rheinmetall and Option Care

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 0.96 times more return on investment than Option Care. However, Rheinmetall AG is 1.04 times less risky than Option Care. It trades about 0.23 of its potential returns per unit of risk. Option Care Health is currently generating about 0.17 per unit of risk. If you would invest  60,280  in Rheinmetall AG on October 11, 2024 and sell it today you would earn a total of  4,360  from holding Rheinmetall AG or generate 7.23% return on investment over 90 days.

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

Rheinmetall AG  vs.  Option Care Health

Rheinmetall AG

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, Rheinmetall exhibited solid returns over the last few months and may actually be approaching a breakup point.

Option Care Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Option Care Health has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Pair Trading with Rheinmetall and Option Care

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

The idea behind Rheinmetall AG and Option Care Health 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.