Correlation Between Transdigm Group and Rolls-Royce Holdings

Can any of the company-specific risk be diversified away by investing in both Transdigm Group and Rolls-Royce Holdings 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 Transdigm Group and Rolls-Royce Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Transdigm Group Incorporated and Rolls Royce Holdings plc, you can compare the effects of market volatilities on Transdigm Group and Rolls-Royce Holdings 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 Transdigm Group with a short position of Rolls-Royce Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transdigm Group and Rolls-Royce Holdings.

Diversification Opportunities for Transdigm Group and Rolls-Royce Holdings

0.2

Correlation Coefficient

Transdigm Group  Rolls-Royce Holdings

Modest diversification

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

Pair Corralation between Transdigm Group and Rolls-Royce Holdings

Considering the 90-day investment horizon Transdigm Group Incorporated is expected to generate 0.43 times more return on investment than Rolls-Royce Holdings. However, Transdigm Group Incorporated is 2.35 times less risky than Rolls-Royce Holdings. It trades about 0.02 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about -0.06 per unit of risk. If you would invest  133,908  in Transdigm Group Incorporated on October 26, 2024 and sell it today you would earn a total of  1,492  from holding Transdigm Group Incorporated or generate 1.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Transdigm Group Incorporated  vs.  Rolls Royce Holdings plc

Transdigm Group

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Transdigm Group Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Transdigm Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Transdigm Group and Rolls-Royce Holdings

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

The idea behind Transdigm Group Incorporated and Rolls Royce Holdings plc 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.