Correlation Between Rolls Royce and Axway Software

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

Diversification Opportunities for Rolls Royce and Axway Software

0.45

Correlation Coefficient

Rolls Royce  Axway Software

Very weak diversification

The 3 months correlation between Rolls and Axway is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Axway Software SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axway Software SA 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 Axway Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axway Software SA has no effect on the direction of Rolls Royce i.e., Rolls Royce and Axway Software go up and down completely randomly.

Pair Corralation between Rolls Royce and Axway Software

Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to generate 1.96 times more return on investment than Axway Software. However, Rolls Royce is 1.96 times more volatile than Axway Software SA. It trades about -0.07 of its potential returns per unit of risk. Axway Software SA is currently generating about -0.16 per unit of risk. If you would invest  58,240  in Rolls Royce Holdings PLC on October 9, 2024 and sell it today you would lose (1,240) from holding Rolls Royce Holdings PLC or give up 2.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

Rolls Royce Holdings PLC  vs.  Axway Software SA

Rolls Royce Holdings

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 6 (%) 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 February 2025.

Axway Software SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Axway Software SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Axway Software may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Rolls Royce and Axway Software

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

The idea behind Rolls Royce Holdings PLC and Axway Software SA 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.