Correlation Between Solid State and Rheinmetall

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

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

Diversification Opportunities for Solid State and Rheinmetall

0.67

Correlation Coefficient

Solid State  Rheinmetall

Poor diversification

The 3 months correlation between Solid and Rheinmetall is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Solid State Plc and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG and Solid State 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 Solid State Plc 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 has no effect on the direction of Solid State i.e., Solid State and Rheinmetall go up and down completely randomly.

Pair Corralation between Solid State and Rheinmetall

Assuming the 90 days trading horizon Solid State is expected to generate 2.08 times less return on investment than Rheinmetall. In addition to that, Solid State is 1.26 times more volatile than Rheinmetall AG. It trades about 0.15 of its total potential returns per unit of risk. Rheinmetall AG is currently generating about 0.39 per unit of volatility. If you would invest  61,900  in Rheinmetall AG on December 26, 2024 and sell it today you would earn a total of  69,875  from holding Rheinmetall AG or generate 112.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Solid State Plc  vs.  Rheinmetall AG

Solid State Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solid State Plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Solid State unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rheinmetall AG

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rheinmetall unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Solid State and Rheinmetall

The main advantage of trading using opposite Solid State and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solid State 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 Solid State Plc and Rheinmetall AG 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.