Correlation Between SLR Investment and Rolls-Royce Holdings

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

Diversification Opportunities for SLR Investment and Rolls-Royce Holdings

0.38

Correlation Coefficient

SLR Investment  Rolls-Royce Holdings

Weak diversification

The 3 months correlation between SLR and Rolls-Royce is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding SLR Investment Corp 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 SLR Investment 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 SLR Investment Corp 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 SLR Investment i.e., SLR Investment and Rolls-Royce Holdings go up and down completely randomly.

Pair Corralation between SLR Investment and Rolls-Royce Holdings

Assuming the 90 days horizon SLR Investment is expected to generate 4.88 times less return on investment than Rolls-Royce Holdings. But when comparing it to its historical volatility, SLR Investment Corp is 2.14 times less risky than Rolls-Royce Holdings. It trades about 0.07 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  120.00  in Rolls Royce Holdings plc on October 22, 2024 and sell it today you would earn a total of  568.00  from holding Rolls Royce Holdings plc or generate 473.33% return on investment over 90 days.

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

SLR Investment Corp  vs.  Rolls Royce Holdings plc

SLR Investment Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SLR Investment Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, SLR Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Rolls Royce Holdings

Risk-Adjusted Performance

1 of 100

Weak

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

Pair Trading with SLR Investment and Rolls-Royce Holdings

The main advantage of trading using opposite SLR Investment and Rolls-Royce Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SLR Investment 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 SLR Investment Corp 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.