Correlation Between Bank of Georgia and Rolls Royce

Can any of the company-specific risk be diversified away by investing in both Bank of Georgia 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 Bank of Georgia and Rolls Royce into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank of Georgia and Rolls Royce Holdings PLC, you can compare the effects of market volatilities on Bank of Georgia 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 Bank of Georgia with a short position of Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of Georgia and Rolls Royce.

Diversification Opportunities for Bank of Georgia and Rolls Royce

0.47

Correlation Coefficient

Bank of Georgia  Rolls Royce

Very weak diversification

The 3 months correlation between Bank and Rolls is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bank of Georgia 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 Bank of Georgia 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 Bank of Georgia 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 Bank of Georgia i.e., Bank of Georgia and Rolls Royce go up and down completely randomly.

Pair Corralation between Bank of Georgia and Rolls Royce

Assuming the 90 days trading horizon Bank of Georgia is expected to generate 1.38 times more return on investment than Rolls Royce. However, Bank of Georgia is 1.38 times more volatile than Rolls Royce Holdings PLC. It trades about 0.17 of its potential returns per unit of risk. Rolls Royce Holdings PLC is currently generating about 0.12 per unit of risk. If you would invest  380,915  in Bank of Georgia on September 20, 2024 and sell it today you would earn a total of  94,085  from holding Bank of Georgia or generate 24.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Bank of Georgia  vs.  Rolls Royce Holdings PLC

Bank of Georgia

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Georgia are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Bank of Georgia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Rolls Royce Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Rolls Royce may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Bank of Georgia and Rolls Royce

The main advantage of trading using opposite Bank of Georgia and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of Georgia 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.

The idea behind Bank of Georgia and Rolls Royce Holdings PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.