Correlation Between Rolls Royce and Thales SA
Can any of the company-specific risk be diversified away by investing in both Rolls Royce and Thales SA 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 Thales SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rolls Royce Holdings and Thales SA ADR, you can compare the effects of market volatilities on Rolls Royce and Thales SA 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 Thales SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rolls Royce and Thales SA.
Diversification Opportunities for Rolls Royce and Thales SA
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Rolls and Thales is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings and Thales SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thales SA ADR 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 are associated (or correlated) with Thales SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thales SA ADR has no effect on the direction of Rolls Royce i.e., Rolls Royce and Thales SA go up and down completely randomly.
Pair Corralation between Rolls Royce and Thales SA
Assuming the 90 days horizon Rolls Royce Holdings is expected to generate 1.55 times more return on investment than Thales SA. However, Rolls Royce is 1.55 times more volatile than Thales SA ADR. It trades about 0.16 of its potential returns per unit of risk. Thales SA ADR is currently generating about 0.03 per unit of risk. If you would invest 110.00 in Rolls Royce Holdings on August 29, 2024 and sell it today you would earn a total of 573.00 from holding Rolls Royce Holdings or generate 520.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Rolls Royce Holdings vs. Thales SA ADR
Performance |
| Timeline |
| Rolls Royce Holdings |
| Thales SA ADR |
Rolls Royce and Thales SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rolls Royce and Thales SA
The main advantage of trading using opposite Rolls Royce and Thales SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rolls Royce position performs unexpectedly, Thales SA 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 Thales SA will offset losses from the drop in Thales SA's long position.| Rolls Royce vs. Eve Holding | Rolls Royce vs. Rolls Royce Holdings PLC | Rolls Royce vs. Sembcorp Marine | Rolls Royce vs. HEICO |
| Thales SA vs. MTU Aero Engines | Thales SA vs. Safran SA | Thales SA vs. Leonardo SpA ADR | Thales SA vs. Airbus Group NV |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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