Correlation Between Rolls Royce and Eagle Eye

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

Diversification Opportunities for Rolls Royce and Eagle Eye

-0.33

Correlation Coefficient

Rolls Royce  Eagle Eye

Very good diversification

The 3 months correlation between Rolls and Eagle is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Eagle Eye Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Eye Solutions 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 Eagle Eye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Eye Solutions has no effect on the direction of Rolls Royce i.e., Rolls Royce and Eagle Eye go up and down completely randomly.

Pair Corralation between Rolls Royce and Eagle Eye

Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to generate 1.42 times more return on investment than Eagle Eye. However, Rolls Royce is 1.42 times more volatile than Eagle Eye Solutions. It trades about 0.15 of its potential returns per unit of risk. Eagle Eye Solutions is currently generating about 0.12 per unit of risk. If you would invest  54,520  in Rolls Royce Holdings PLC on September 15, 2024 and sell it today you would earn a total of  2,740  from holding Rolls Royce Holdings PLC or generate 5.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Rolls Royce Holdings PLC  vs.  Eagle Eye Solutions

Rolls Royce Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 10 (%) 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.

Eagle Eye Solutions

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Eye Solutions are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Eagle Eye is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Rolls Royce and Eagle Eye

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

The idea behind Rolls Royce Holdings PLC and Eagle Eye Solutions 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.