Correlation Between Transdigm Group and Rheinmetall

Can any of the company-specific risk be diversified away by investing in both Transdigm Group 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 Transdigm Group and Rheinmetall 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 Rheinmetall AG, you can compare the effects of market volatilities on Transdigm Group 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 Transdigm Group with a short position of Rheinmetall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transdigm Group and Rheinmetall.

Diversification Opportunities for Transdigm Group and Rheinmetall

0.61

Correlation Coefficient

Transdigm Group  Rheinmetall

Poor diversification

The 3 months correlation between Transdigm and Rheinmetall is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Transdigm Group Incorporated and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG 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 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 Transdigm Group i.e., Transdigm Group and Rheinmetall go up and down completely randomly.

Pair Corralation between Transdigm Group and Rheinmetall

Considering the 90-day investment horizon Transdigm Group is expected to generate 6.11 times less return on investment than Rheinmetall. But when comparing it to its historical volatility, Transdigm Group Incorporated is 2.44 times less risky than Rheinmetall. It trades about 0.1 of its potential returns per unit of risk. Rheinmetall AG is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  65,900  in Rheinmetall AG on December 2, 2024 and sell it today you would earn a total of  43,338  from holding Rheinmetall AG or generate 65.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Transdigm Group Incorporated  vs.  Rheinmetall AG

Transdigm Group

Risk-Adjusted Performance

OK

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

Rheinmetall AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain fundamental drivers, Rheinmetall reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transdigm Group and Rheinmetall

The main advantage of trading using opposite Transdigm Group and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transdigm Group 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 Transdigm Group Incorporated 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .