Correlation Between Rolls Royce and CHINA HUARONG
Can any of the company-specific risk be diversified away by investing in both Rolls Royce and CHINA HUARONG 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 CHINA HUARONG 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 CHINA HUARONG ENERHD 50, you can compare the effects of market volatilities on Rolls Royce and CHINA HUARONG 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 CHINA HUARONG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rolls Royce and CHINA HUARONG.
Diversification Opportunities for Rolls Royce and CHINA HUARONG
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Rolls and CHINA is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings plc and CHINA HUARONG ENERHD 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA HUARONG ENERHD 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 CHINA HUARONG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA HUARONG ENERHD has no effect on the direction of Rolls Royce i.e., Rolls Royce and CHINA HUARONG go up and down completely randomly.
Pair Corralation between Rolls Royce and CHINA HUARONG
Assuming the 90 days horizon Rolls Royce is expected to generate 11.24 times less return on investment than CHINA HUARONG. But when comparing it to its historical volatility, Rolls Royce Holdings plc is 15.21 times less risky than CHINA HUARONG. It trades about 0.15 of its potential returns per unit of risk. CHINA HUARONG ENERHD 50 is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 0.60 in CHINA HUARONG ENERHD 50 on August 27, 2024 and sell it today you would lose (0.45) from holding CHINA HUARONG ENERHD 50 or give up 75.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rolls Royce Holdings plc vs. CHINA HUARONG ENERHD 50
Performance |
| Timeline |
| Rolls Royce Holdings |
| CHINA HUARONG ENERHD |
Rolls Royce and CHINA HUARONG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rolls Royce and CHINA HUARONG
The main advantage of trading using opposite Rolls Royce and CHINA HUARONG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rolls Royce position performs unexpectedly, CHINA HUARONG 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 CHINA HUARONG will offset losses from the drop in CHINA HUARONG's long position.| Rolls Royce vs. Raytheon Technologies Corp | Rolls Royce vs. The Boeing | Rolls Royce vs. The Boeing | Rolls Royce vs. Airbus SE |
| CHINA HUARONG vs. EOG Resources | CHINA HUARONG vs. Canadian Natural Resources | CHINA HUARONG vs. Woodside Energy Group |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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