Correlation Between Rolls Royce and HEICO

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

Diversification Opportunities for Rolls Royce and HEICO

-0.2

Correlation Coefficient

Rolls Royce  HEICO

Good diversification

The 3 months correlation between Rolls and HEICO is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and HEICO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HEICO 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 HEICO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HEICO has no effect on the direction of Rolls Royce i.e., Rolls Royce and HEICO go up and down completely randomly.

Pair Corralation between Rolls Royce and HEICO

Assuming the 90 days horizon Rolls Royce Holdings PLC is expected to generate 1.36 times more return on investment than HEICO. However, Rolls Royce is 1.36 times more volatile than HEICO. It trades about 0.09 of its potential returns per unit of risk. HEICO is currently generating about 0.0 per unit of risk. If you would invest  653.00  in Rolls Royce Holdings PLC on September 13, 2024 and sell it today you would earn a total of  66.00  from holding Rolls Royce Holdings PLC or generate 10.11% 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.  HEICO

Rolls Royce Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, Rolls Royce may actually be approaching a critical reversion point that can send shares even higher in January 2025.

HEICO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HEICO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HEICO is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rolls Royce and HEICO

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

The idea behind Rolls Royce Holdings PLC and HEICO 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.