Correlation Between Rolls Royce and Royal Bank

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

Diversification Opportunities for Rolls Royce and Royal Bank

-0.13

Correlation Coefficient

Rolls Royce  Royal Bank

Good diversification

The 3 months correlation between Rolls and Royal is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Royal Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Bank 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 Royal Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Bank has no effect on the direction of Rolls Royce i.e., Rolls Royce and Royal Bank go up and down completely randomly.

Pair Corralation between Rolls Royce and Royal Bank

Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to generate 2.19 times more return on investment than Royal Bank. However, Rolls Royce is 2.19 times more volatile than Royal Bank of. It trades about 0.13 of its potential returns per unit of risk. Royal Bank of is currently generating about 0.02 per unit of risk. If you would invest  57,560  in Rolls Royce Holdings PLC on October 22, 2024 and sell it today you would earn a total of  1,980  from holding Rolls Royce Holdings PLC or generate 3.44% return on investment over 90 days.

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

Rolls Royce Holdings PLC  vs.  Royal Bank of

Rolls Royce Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Rolls Royce is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Royal Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Royal Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Royal Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Rolls Royce and Royal Bank

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

The idea behind Rolls Royce Holdings PLC and Royal Bank of 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.