Correlation Between Rolls Royce and Weir Group

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

Diversification Opportunities for Rolls Royce and Weir Group

0.56

Correlation Coefficient

Rolls Royce  Weir Group

Very weak diversification

The 3 months correlation between Rolls and Weir is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Weir Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weir Group 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 Weir Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weir Group PLC has no effect on the direction of Rolls Royce i.e., Rolls Royce and Weir Group go up and down completely randomly.

Pair Corralation between Rolls Royce and Weir Group

Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to generate 1.75 times more return on investment than Weir Group. However, Rolls Royce is 1.75 times more volatile than Weir Group PLC. It trades about 0.15 of its potential returns per unit of risk. Weir Group PLC is currently generating about 0.04 per unit of risk. If you would invest  10,716  in Rolls Royce Holdings PLC on October 7, 2024 and sell it today you would earn a total of  47,784  from holding Rolls Royce Holdings PLC or generate 445.91% return on investment over 90 days.

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

Rolls Royce Holdings PLC  vs.  Weir Group PLC

Rolls Royce Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 8 (%) 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 February 2025.

Weir Group PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Weir Group PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Weir Group is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Rolls Royce and Weir Group

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

The idea behind Rolls Royce Holdings PLC and Weir Group 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..