Correlation Between Rolls Royce and Bellway PLC

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

Diversification Opportunities for Rolls Royce and Bellway PLC

-0.01

Correlation Coefficient

Rolls Royce  Bellway PLC

Good diversification

The 3 months correlation between Rolls and Bellway is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Bellway PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bellway 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 Bellway PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bellway PLC has no effect on the direction of Rolls Royce i.e., Rolls Royce and Bellway PLC go up and down completely randomly.

Pair Corralation between Rolls Royce and Bellway PLC

Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to generate 2.03 times more return on investment than Bellway PLC. However, Rolls Royce is 2.03 times more volatile than Bellway PLC. It trades about 0.36 of its potential returns per unit of risk. Bellway PLC is currently generating about -0.26 per unit of risk. If you would invest  59,540  in Rolls Royce Holdings PLC on December 4, 2024 and sell it today you would earn a total of  18,140  from holding Rolls Royce Holdings PLC or generate 30.47% 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.  Bellway PLC

Rolls Royce Holdings

Risk-Adjusted Performance

Good

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 unsteady basic indicators, Rolls Royce exhibited solid returns over the last few months and may actually be approaching a breakup point.

Bellway PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bellway PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Bellway PLC exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rolls Royce and Bellway PLC

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

The idea behind Rolls Royce Holdings PLC and Bellway 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.