Correlation Between Rolls Royce and Cass Information

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

Diversification Opportunities for Rolls Royce and Cass Information

0.5

Correlation Coefficient

Rolls Royce  Cass Information

Very weak diversification

The 3 months correlation between Rolls and Cass is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings plc and Cass Information Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cass Information Systems 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 Cass Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cass Information Systems has no effect on the direction of Rolls Royce i.e., Rolls Royce and Cass Information go up and down completely randomly.

Pair Corralation between Rolls Royce and Cass Information

Assuming the 90 days horizon Rolls Royce Holdings plc is expected to generate 1.48 times more return on investment than Cass Information. However, Rolls Royce is 1.48 times more volatile than Cass Information Systems. It trades about -0.08 of its potential returns per unit of risk. Cass Information Systems is currently generating about -0.31 per unit of risk. If you would invest  708.00  in Rolls Royce Holdings plc on October 9, 2024 and sell it today you would lose (18.00) from holding Rolls Royce Holdings plc or give up 2.54% of portfolio value over 90 days.

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

Rolls Royce Holdings plc  vs.  Cass Information Systems

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.

Cass Information Systems

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cass Information Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Cass Information may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Rolls Royce and Cass Information

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

The idea behind Rolls Royce Holdings plc and Cass Information Systems 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.