Correlation Between Rolls Royce and Ashtead Technology

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

Diversification Opportunities for Rolls Royce and Ashtead Technology

-0.22

Correlation Coefficient

Rolls Royce  Ashtead Technology

Very good diversification

The 3 months correlation between Rolls and Ashtead is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Ashtead Technology Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ashtead Technology 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 Ashtead Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ashtead Technology has no effect on the direction of Rolls Royce i.e., Rolls Royce and Ashtead Technology go up and down completely randomly.

Pair Corralation between Rolls Royce and Ashtead Technology

Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to generate 0.8 times more return on investment than Ashtead Technology. However, Rolls Royce Holdings PLC is 1.25 times less risky than Ashtead Technology. It trades about 0.17 of its potential returns per unit of risk. Ashtead Technology Holdings is currently generating about 0.03 per unit of risk. If you would invest  54,560  in Rolls Royce Holdings PLC on September 23, 2024 and sell it today you would earn a total of  2,980  from holding Rolls Royce Holdings PLC or generate 5.46% 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.  Ashtead Technology Holdings

Rolls Royce Holdings

Risk-Adjusted Performance

6 of 100

Modest

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 January 2025.

Ashtead Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ashtead Technology Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Rolls Royce and Ashtead Technology

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

The idea behind Rolls Royce Holdings PLC and Ashtead Technology Holdings 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..