Correlation Between INTUITIVE SURGICAL and Rolls Royce

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

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

Diversification Opportunities for INTUITIVE SURGICAL and Rolls Royce

0.63

Correlation Coefficient

INTUITIVE SURGICAL  Rolls Royce

Poor diversification

The 3 months correlation between INTUITIVE and Rolls is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding INTUITIVE SURGICAL 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 INTUITIVE SURGICAL 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 INTUITIVE SURGICAL 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 INTUITIVE SURGICAL i.e., INTUITIVE SURGICAL and Rolls Royce go up and down completely randomly.

Pair Corralation between INTUITIVE SURGICAL and Rolls Royce

Assuming the 90 days trading horizon INTUITIVE SURGICAL is expected to generate 1.2 times less return on investment than Rolls Royce. But when comparing it to its historical volatility, INTUITIVE SURGICAL is 1.23 times less risky than Rolls Royce. It trades about 0.13 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  590.00  in Rolls Royce Holdings plc on September 12, 2024 and sell it today you would earn a total of  100.00  from holding Rolls Royce Holdings plc or generate 16.95% return on investment over 90 days.

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

INTUITIVE SURGICAL  vs.  Rolls Royce Holdings plc

INTUITIVE SURGICAL

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in INTUITIVE SURGICAL are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, INTUITIVE SURGICAL exhibited 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. Despite nearly uncertain basic indicators, Rolls Royce reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with INTUITIVE SURGICAL and Rolls Royce

The main advantage of trading using opposite INTUITIVE SURGICAL and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if INTUITIVE SURGICAL 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 INTUITIVE SURGICAL 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.