Correlation Between URU Metals and Rheinmetall

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

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

Diversification Opportunities for URU Metals and Rheinmetall

0.7

Correlation Coefficient

URU Metals  Rheinmetall

Poor diversification

The 3 months correlation between URU and Rheinmetall is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding URU Metals and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG and URU Metals 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 URU Metals 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 URU Metals i.e., URU Metals and Rheinmetall go up and down completely randomly.

Pair Corralation between URU Metals and Rheinmetall

Assuming the 90 days trading horizon URU Metals is expected to generate 2.2 times more return on investment than Rheinmetall. However, URU Metals is 2.2 times more volatile than Rheinmetall AG. It trades about 0.12 of its potential returns per unit of risk. Rheinmetall AG is currently generating about 0.24 per unit of risk. If you would invest  12,000  in URU Metals on October 11, 2024 and sell it today you would earn a total of  4,000  from holding URU Metals or generate 33.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

URU Metals  vs.  Rheinmetall AG

URU Metals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in URU Metals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, URU Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Rheinmetall AG

Risk-Adjusted Performance

19 of 100

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. 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 URU Metals and Rheinmetall

The main advantage of trading using opposite URU Metals and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if URU Metals 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 URU Metals 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.