Correlation Between Triumph and Rolls Royce

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

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

Diversification Opportunities for Triumph and Rolls Royce

0.7

Correlation Coefficient

Triumph  Rolls Royce

Poor diversification

The 3 months correlation between Triumph and Rolls is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Triumph Group 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 Triumph 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 Triumph Group are associated (or correlated) with Rolls Royce. 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 Triumph i.e., Triumph and Rolls Royce go up and down completely randomly.

Pair Corralation between Triumph and Rolls Royce

Considering the 90-day investment horizon Triumph Group is expected to generate 1.43 times more return on investment than Rolls Royce. However, Triumph is 1.43 times more volatile than Rolls Royce Holdings PLC. It trades about 0.13 of its potential returns per unit of risk. Rolls Royce Holdings PLC is currently generating about 0.19 per unit of risk. 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

Triumph Group  vs.  Rolls Royce Holdings PLC

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.

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.

Pair Trading with Triumph and Rolls Royce

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

The idea behind Triumph Group 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.