Correlation Between Rolls Royce and Air Products
Can any of the company-specific risk be diversified away by investing in both Rolls Royce and Air Products 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 Rolls Royce and Air Products into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rolls Royce Holdings PLC and Air Products Chemicals, you can compare the effects of market volatilities on Rolls Royce and Air Products 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 Rolls Royce with a short position of Air Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rolls Royce and Air Products.
Diversification Opportunities for Rolls Royce and Air Products
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Rolls and Air is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Air Products Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products Chemicals and Rolls Royce 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 Rolls Royce Holdings PLC are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products Chemicals has no effect on the direction of Rolls Royce i.e., Rolls Royce and Air Products go up and down completely randomly.
Pair Corralation between Rolls Royce and Air Products
Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to under-perform the Air Products. In addition to that, Rolls Royce is 1.71 times more volatile than Air Products Chemicals. It trades about -0.05 of its total potential returns per unit of risk. Air Products Chemicals is currently generating about 0.19 per unit of volatility. If you would invest 31,616 in Air Products Chemicals on August 27, 2024 and sell it today you would earn a total of 1,455 from holding Air Products Chemicals or generate 4.6% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Rolls Royce Holdings PLC vs. Air Products Chemicals
Performance |
Timeline |
Rolls Royce Holdings |
Air Products Chemicals |
Rolls Royce and Air Products Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Rolls Royce and Air Products
The main advantage of trading using opposite Rolls Royce and Air Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rolls Royce position performs unexpectedly, Air Products 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 Air Products will offset losses from the drop in Air Products' long position.Rolls Royce vs. Air Products Chemicals | Rolls Royce vs. International Biotechnology Trust | Rolls Royce vs. Verizon Communications | Rolls Royce vs. Zegona Communications Plc |
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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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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