Correlation Between Rolls Royce and American Tower

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

Diversification Opportunities for Rolls Royce and American Tower

-0.08

Correlation Coefficient

Rolls Royce  American Tower

Good diversification

The 3 months correlation between Rolls and American is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings plc and American Tower Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Tower Corp 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 American Tower. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Tower Corp has no effect on the direction of Rolls Royce i.e., Rolls Royce and American Tower go up and down completely randomly.

Pair Corralation between Rolls Royce and American Tower

Assuming the 90 days horizon Rolls Royce Holdings plc is expected to generate 1.46 times more return on investment than American Tower. However, Rolls Royce is 1.46 times more volatile than American Tower Corp. It trades about 0.16 of its potential returns per unit of risk. American Tower Corp is currently generating about 0.02 per unit of risk. If you would invest  275.00  in Rolls Royce Holdings plc on October 8, 2024 and sell it today you would earn a total of  433.00  from holding Rolls Royce Holdings plc or generate 157.45% 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.  American Tower Corp

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. Despite nearly uncertain basic indicators, Rolls Royce may actually be approaching a critical reversion point that can send shares even higher in February 2025.

American Tower Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Tower Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Rolls Royce and American Tower

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

The idea behind Rolls Royce Holdings plc and American Tower Corp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.