Correlation Between Rolls-Royce Holdings and Curtiss Wright

Can any of the company-specific risk be diversified away by investing in both Rolls-Royce Holdings and Curtiss Wright 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 Curtiss Wright 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 Curtiss Wright, you can compare the effects of market volatilities on Rolls-Royce Holdings and Curtiss Wright 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 Curtiss Wright. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rolls-Royce Holdings and Curtiss Wright.

Diversification Opportunities for Rolls-Royce Holdings and Curtiss Wright

0.1

Correlation Coefficient

Rolls-Royce Holdings  Curtiss Wright

Average diversification

The 3 months correlation between Rolls-Royce and Curtiss is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings plc and Curtiss Wright in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Curtiss Wright 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 Curtiss Wright. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Curtiss Wright has no effect on the direction of Rolls-Royce Holdings i.e., Rolls-Royce Holdings and Curtiss Wright go up and down completely randomly.

Pair Corralation between Rolls-Royce Holdings and Curtiss Wright

Assuming the 90 days horizon Rolls Royce Holdings plc is expected to under-perform the Curtiss Wright. In addition to that, Rolls-Royce Holdings is 2.12 times more volatile than Curtiss Wright. It trades about -0.06 of its total potential returns per unit of risk. Curtiss Wright is currently generating about 0.09 per unit of volatility. If you would invest  34,938  in Curtiss Wright on October 26, 2024 and sell it today you would earn a total of  3,469  from holding Curtiss Wright or generate 9.93% return on investment over 90 days.

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

Rolls Royce Holdings plc  vs.  Curtiss Wright

Rolls Royce Holdings

Risk-Adjusted Performance

0 of 100

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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Curtiss Wright

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Curtiss Wright are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Curtiss Wright may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Rolls-Royce Holdings and Curtiss Wright

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

The idea behind Rolls Royce Holdings plc and Curtiss Wright 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.