Correlation Between Rolls Royce and Taiga Building

Can any of the company-specific risk be diversified away by investing in both Rolls Royce and Taiga Building 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 and Taiga Building 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 Taiga Building Products, you can compare the effects of market volatilities on Rolls Royce and Taiga Building 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 with a short position of Taiga Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rolls Royce and Taiga Building.

Diversification Opportunities for Rolls Royce and Taiga Building

0.21

Correlation Coefficient

Rolls Royce  Taiga Building

Modest diversification

The 3 months correlation between Rolls and Taiga is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings plc and Taiga Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiga Building Products and Rolls Royce 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 Taiga Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiga Building Products has no effect on the direction of Rolls Royce i.e., Rolls Royce and Taiga Building go up and down completely randomly.

Pair Corralation between Rolls Royce and Taiga Building

Assuming the 90 days horizon Rolls Royce is expected to generate 12.67 times less return on investment than Taiga Building. In addition to that, Rolls Royce is 2.59 times more volatile than Taiga Building Products. It trades about 0.0 of its total potential returns per unit of risk. Taiga Building Products is currently generating about 0.03 per unit of volatility. If you would invest  227.00  in Taiga Building Products on October 11, 2024 and sell it today you would earn a total of  49.00  from holding Taiga Building Products or generate 21.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	87.7%
Values	Daily Returns

Rolls Royce Holdings plc  vs.  Taiga Building Products

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.

Taiga Building Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Taiga Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Taiga Building is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Rolls Royce and Taiga Building

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

The idea behind Rolls Royce Holdings plc and Taiga Building Products 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.

Check out your portfolio center.

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.