Correlation Between Rolls Royce and Triumph

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

Diversification Opportunities for Rolls Royce and Triumph

0.7

Correlation Coefficient

Rolls Royce  Triumph

Poor diversification

The 3 months correlation between Rolls and Triumph is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Triumph Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Triumph Group 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 Triumph. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Triumph Group has no effect on the direction of Rolls Royce i.e., Rolls Royce and Triumph go up and down completely randomly.

Pair Corralation between Rolls Royce and Triumph

Assuming the 90 days horizon Rolls Royce is expected to generate 1.01 times less return on investment than Triumph. But when comparing it to its historical volatility, Rolls Royce Holdings PLC is 1.43 times less risky than Triumph. It trades about 0.19 of its potential returns per unit of risk. Triumph Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,865  in Triumph Group on December 30, 2024 and sell it today you would earn a total of  678.00  from holding Triumph Group or generate 36.35% return on investment over 90 days.

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

Rolls Royce Holdings PLC  vs.  Triumph Group

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 fragile technical and fundamental indicators, Rolls Royce reported solid returns over the last few months and may actually be approaching a breakup point.

Triumph Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Triumph Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Triumph demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rolls Royce and Triumph

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

The idea behind Rolls Royce Holdings PLC and Triumph Group 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.