Correlation Between Textron and Rolls-Royce Holdings

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

Diversification Opportunities for Textron and Rolls-Royce Holdings

0.73

Correlation Coefficient

Textron  Rolls-Royce Holdings

Poor diversification

The 3 months correlation between Textron and Rolls-Royce is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Textron 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 Textron 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 Textron 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 Textron i.e., Textron and Rolls-Royce Holdings go up and down completely randomly.

Pair Corralation between Textron and Rolls-Royce Holdings

Considering the 90-day investment horizon Textron is expected to generate 2.07 times less return on investment than Rolls-Royce Holdings. But when comparing it to its historical volatility, Textron is 3.72 times less risky than Rolls-Royce Holdings. It trades about 0.01 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  0.52  in Rolls Royce Holdings plc on October 27, 2024 and sell it today you would lose (0.21) from holding Rolls Royce Holdings plc or give up 40.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Textron  vs.  Rolls Royce Holdings plc

Textron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Textron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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 latest fragile performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Textron and Rolls-Royce Holdings

The main advantage of trading using opposite Textron and Rolls-Royce Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Textron 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 Textron 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.