Correlation Between Rolls-Royce Holdings and Huntington Ingalls

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

Diversification Opportunities for Rolls-Royce Holdings and Huntington Ingalls

0.41

Correlation Coefficient

Rolls-Royce Holdings  Huntington Ingalls

Very weak diversification

The 3 months correlation between Rolls-Royce and Huntington is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings plc and Huntington Ingalls Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huntington Ingalls 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 Huntington Ingalls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huntington Ingalls has no effect on the direction of Rolls-Royce Holdings i.e., Rolls-Royce Holdings and Huntington Ingalls go up and down completely randomly.

Pair Corralation between Rolls-Royce Holdings and Huntington Ingalls

Assuming the 90 days horizon Rolls-Royce Holdings is expected to generate 1.14 times less return on investment than Huntington Ingalls. In addition to that, Rolls-Royce Holdings is 1.6 times more volatile than Huntington Ingalls Industries. It trades about 0.03 of its total potential returns per unit of risk. Huntington Ingalls Industries is currently generating about 0.05 per unit of volatility. If you would invest  18,897  in Huntington Ingalls Industries on December 20, 2024 and sell it today you would earn a total of  1,274  from holding Huntington Ingalls Industries or generate 6.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Rolls Royce Holdings plc  vs.  Huntington Ingalls Industries

Rolls Royce Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Rolls-Royce Holdings may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Huntington Ingalls

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Huntington Ingalls Industries are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain forward indicators, Huntington Ingalls may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Rolls-Royce Holdings and Huntington Ingalls

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

The idea behind Rolls Royce Holdings plc and Huntington Ingalls Industries 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.