Correlation Between Safran SA and Rheinmetall

Can any of the company-specific risk be diversified away by investing in both Safran SA and Rheinmetall 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 Safran SA and Rheinmetall into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Safran SA and Rheinmetall AG ADR, you can compare the effects of market volatilities on Safran SA and Rheinmetall 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 Safran SA with a short position of Rheinmetall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Safran SA and Rheinmetall.

Diversification Opportunities for Safran SA and Rheinmetall

-0.08

Correlation Coefficient

Safran SA  Rheinmetall

Good diversification

The 3 months correlation between Safran and Rheinmetall is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Safran SA and Rheinmetall AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG ADR and Safran SA 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 Safran SA are associated (or correlated) with Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG ADR has no effect on the direction of Safran SA i.e., Safran SA and Rheinmetall go up and down completely randomly.

Pair Corralation between Safran SA and Rheinmetall

Assuming the 90 days horizon Safran SA is expected to generate 32.19 times less return on investment than Rheinmetall. But when comparing it to its historical volatility, Safran SA is 1.37 times less risky than Rheinmetall. It trades about 0.0 of its potential returns per unit of risk. Rheinmetall AG ADR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  11,314  in Rheinmetall AG ADR on September 11, 2024 and sell it today you would earn a total of  1,643  from holding Rheinmetall AG ADR or generate 14.52% return on investment over 90 days.

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

Safran SA  vs.  Rheinmetall AG ADR

Safran SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Rheinmetall AG ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Rheinmetall showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Safran SA and Rheinmetall

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

The idea behind Safran SA and Rheinmetall AG ADR 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.