Correlation Between Rolls Royce and Platinum Investment

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

Diversification Opportunities for Rolls Royce and Platinum Investment

-0.8

Correlation Coefficient

Rolls Royce  Platinum Investment

Pay attention - limited upside

The 3 months correlation between Rolls and Platinum is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings plc and Platinum Investment Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Platinum Investment 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 Platinum Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Platinum Investment has no effect on the direction of Rolls Royce i.e., Rolls Royce and Platinum Investment go up and down completely randomly.

Pair Corralation between Rolls Royce and Platinum Investment

Assuming the 90 days horizon Rolls Royce Holdings plc is expected to generate 0.8 times more return on investment than Platinum Investment. However, Rolls Royce Holdings plc is 1.24 times less risky than Platinum Investment. It trades about 0.18 of its potential returns per unit of risk. Platinum Investment Management is currently generating about -0.05 per unit of risk. If you would invest  689.00  in Rolls Royce Holdings plc on December 28, 2024 and sell it today you would earn a total of  272.00  from holding Rolls Royce Holdings plc or generate 39.48% return on investment over 90 days.

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

Rolls Royce Holdings plc  vs.  Platinum Investment Management

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. Despite nearly weak basic indicators, Rolls Royce reported solid returns over the last few months and may actually be approaching a breakup point.

Platinum Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Platinum Investment Management 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 Platinum Investment

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

The idea behind Rolls Royce Holdings plc and Platinum Investment Management 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.