Correlation Between Rolls Royce and Eve Holding

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

Diversification Opportunities for Rolls Royce and Eve Holding

0.23

Correlation Coefficient

Rolls Royce  Eve Holding

Modest diversification

The 3 months correlation between Rolls and Eve is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Eve Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eve Holding 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 Eve Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eve Holding has no effect on the direction of Rolls Royce i.e., Rolls Royce and Eve Holding go up and down completely randomly.

Pair Corralation between Rolls Royce and Eve Holding

Assuming the 90 days horizon Rolls Royce Holdings PLC is expected to generate 0.27 times more return on investment than Eve Holding. However, Rolls Royce Holdings PLC is 3.77 times less risky than Eve Holding. It trades about -0.08 of its potential returns per unit of risk. Eve Holding is currently generating about -0.06 per unit of risk. If you would invest  727.00  in Rolls Royce Holdings PLC on October 21, 2024 and sell it today you would lose (15.00) from holding Rolls Royce Holdings PLC or give up 2.06% of portfolio value over 90 days.

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

Rolls Royce Holdings PLC  vs.  Eve Holding

Rolls Royce Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rolls Royce Holdings PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Rolls Royce is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Eve Holding

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eve Holding are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady technical and fundamental indicators, Eve Holding showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rolls Royce and Eve Holding

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

The idea behind Rolls Royce Holdings PLC and Eve Holding 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.