Correlation Between Rolls Royce and Endo International

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

Diversification Opportunities for Rolls Royce and Endo International

0.87

Correlation Coefficient

Rolls Royce  Endo International

Very poor diversification

The 3 months correlation between Rolls and Endo is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Endo International PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endo International PLC 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 Endo International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endo International PLC has no effect on the direction of Rolls Royce i.e., Rolls Royce and Endo International go up and down completely randomly.

Pair Corralation between Rolls Royce and Endo International

Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to generate 2.59 times more return on investment than Endo International. However, Rolls Royce is 2.59 times more volatile than Endo International PLC. It trades about 0.18 of its potential returns per unit of risk. Endo International PLC is currently generating about 0.22 per unit of risk. If you would invest  57,040  in Rolls Royce Holdings PLC on December 29, 2024 and sell it today you would earn a total of  20,080  from holding Rolls Royce Holdings PLC or generate 35.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Rolls Royce Holdings PLC  vs.  Endo International PLC

Rolls Royce Holdings

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Rolls Royce exhibited solid returns over the last few months and may actually be approaching a breakup point.

Endo International PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Endo International PLC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Endo International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rolls Royce and Endo International

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

The idea behind Rolls Royce Holdings PLC and Endo International PLC 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 Stocks Directory module to find actively traded stocks across global markets.