Correlation Between Leonardo SpA and Rheinmetall
Can any of the company-specific risk be diversified away by investing in both Leonardo SpA 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 Leonardo SpA and Rheinmetall into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Leonardo SpA ADR and Rheinmetall AG, you can compare the effects of market volatilities on Leonardo SpA 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 Leonardo SpA with a short position of Rheinmetall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leonardo SpA and Rheinmetall.
Diversification Opportunities for Leonardo SpA and Rheinmetall
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Leonardo and Rheinmetall is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Leonardo SpA ADR and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG and Leonardo SpA 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 Leonardo SpA ADR 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 Leonardo SpA i.e., Leonardo SpA and Rheinmetall go up and down completely randomly.
Pair Corralation between Leonardo SpA and Rheinmetall
Assuming the 90 days horizon Leonardo SpA is expected to generate 1.32 times less return on investment than Rheinmetall. But when comparing it to its historical volatility, Leonardo SpA ADR is 1.28 times less risky than Rheinmetall. It trades about 0.13 of its potential returns per unit of risk. Rheinmetall AG is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 30,228 in Rheinmetall AG on September 4, 2024 and sell it today you would earn a total of 35,672 from holding Rheinmetall AG or generate 118.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.38% |
| Values | Daily Returns |
Leonardo SpA ADR vs. Rheinmetall AG
Performance |
| Timeline |
| Leonardo SpA ADR |
| Rheinmetall AG |
Leonardo SpA and Rheinmetall Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Leonardo SpA and Rheinmetall
The main advantage of trading using opposite Leonardo SpA and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leonardo SpA 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.| Leonardo SpA vs. Leonardo Spa | Leonardo SpA vs. Thales SA ADR | Leonardo SpA vs. Safran SA | Leonardo SpA vs. Rheinmetall AG ADR |
| Rheinmetall vs. Lockheed Martin | Rheinmetall vs. BAE Systems PLC | Rheinmetall vs. Qinetiq Group PLC | Rheinmetall vs. Leonardo SpA ADR |
Check out your portfolio center.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.
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