Correlation Between Rolls Royce and Alstria Office

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

Diversification Opportunities for Rolls Royce and Alstria Office

0.67

Correlation Coefficient

Rolls Royce  Alstria Office

Poor diversification

The 3 months correlation between Rolls and Alstria is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and alstria office REIT AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on alstria office REIT 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 Alstria Office. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of alstria office REIT has no effect on the direction of Rolls Royce i.e., Rolls Royce and Alstria Office go up and down completely randomly.

Pair Corralation between Rolls Royce and Alstria Office

Assuming the 90 days trading horizon Rolls Royce is expected to generate 2.6 times less return on investment than Alstria Office. But when comparing it to its historical volatility, Rolls Royce Holdings PLC is 1.09 times less risky than Alstria Office. It trades about 0.1 of its potential returns per unit of risk. alstria office REIT AG is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  596.00  in alstria office REIT AG on September 30, 2024 and sell it today you would earn a total of  169.00  from holding alstria office REIT AG or generate 28.36% return on investment over 90 days.

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

Rolls Royce Holdings PLC  vs.  alstria office REIT AG

Rolls Royce Holdings

Risk-Adjusted Performance

7 of 100

OK

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

alstria office REIT

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in alstria office REIT AG are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, Alstria Office disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rolls Royce and Alstria Office

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

The idea behind Rolls Royce Holdings PLC and alstria office REIT AG 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.