Correlation Between CHINA HUARONG and Rolls Royce
Can any of the company-specific risk be diversified away by investing in both CHINA HUARONG and Rolls Royce 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 CHINA HUARONG and Rolls Royce into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CHINA HUARONG ENERHD 50 and Rolls Royce Holdings plc, you can compare the effects of market volatilities on CHINA HUARONG and Rolls Royce 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 CHINA HUARONG with a short position of Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHINA HUARONG and Rolls Royce.
Diversification Opportunities for CHINA HUARONG and Rolls Royce
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CHINA and Rolls is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding CHINA HUARONG ENERHD 50 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 CHINA HUARONG 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 CHINA HUARONG ENERHD 50 are associated (or correlated) with Rolls Royce. 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 CHINA HUARONG i.e., CHINA HUARONG and Rolls Royce go up and down completely randomly.
Pair Corralation between CHINA HUARONG and Rolls Royce
Assuming the 90 days trading horizon CHINA HUARONG ENERHD 50 is expected to generate 15.21 times more return on investment than Rolls Royce. However, CHINA HUARONG is 15.21 times more volatile than Rolls Royce Holdings plc. It trades about 0.11 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.15 per unit of risk. 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 |
CHINA HUARONG ENERHD 50 vs. Rolls Royce Holdings plc
Performance |
| Timeline |
| CHINA HUARONG ENERHD |
| Rolls Royce Holdings |
CHINA HUARONG and Rolls Royce Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CHINA HUARONG and Rolls Royce
The main advantage of trading using opposite CHINA HUARONG and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CHINA HUARONG position performs unexpectedly, Rolls Royce 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 will offset losses from the drop in Rolls Royce's long position.| CHINA HUARONG vs. EOG Resources | CHINA HUARONG vs. Canadian Natural Resources | CHINA HUARONG vs. Woodside Energy Group |
| Rolls Royce vs. Raytheon Technologies Corp | Rolls Royce vs. The Boeing | Rolls Royce vs. The Boeing | Rolls Royce vs. Airbus SE |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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