Correlation Between Rolls-Royce Holdings and AAR Corp

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

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

Diversification Opportunities for Rolls-Royce Holdings and AAR Corp

0.13

Correlation Coefficient

Rolls-Royce Holdings  AAR Corp

Average diversification

The 3 months correlation between Rolls-Royce and AAR is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings plc and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp and Rolls-Royce Holdings 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 Rolls Royce Holdings plc are associated (or correlated) with AAR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAR Corp has no effect on the direction of Rolls-Royce Holdings i.e., Rolls-Royce Holdings and AAR Corp go up and down completely randomly.

Pair Corralation between Rolls-Royce Holdings and AAR Corp

Assuming the 90 days horizon Rolls Royce Holdings plc is expected to under-perform the AAR Corp. In addition to that, Rolls-Royce Holdings is 2.3 times more volatile than AAR Corp. It trades about -0.06 of its total potential returns per unit of risk. AAR Corp is currently generating about -0.07 per unit of volatility. If you would invest  6,952  in AAR Corp on November 29, 2024 and sell it today you would lose (610.00) from holding AAR Corp or give up 8.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Rolls Royce Holdings plc  vs.  AAR Corp

Rolls Royce Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rolls Royce Holdings plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

AAR Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days AAR Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest abnormal performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Rolls-Royce Holdings and AAR Corp

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

The idea behind Rolls Royce Holdings plc and AAR Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.