Correlation Between Rheinmetall and Hensoldt

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

By analyzing existing cross correlation between Rheinmetall AG ADR and Hensoldt AG, you can compare the effects of market volatilities on Rheinmetall and Hensoldt 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 Rheinmetall with a short position of Hensoldt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rheinmetall and Hensoldt.

Diversification Opportunities for Rheinmetall and Hensoldt

0.54

Correlation Coefficient

Rheinmetall  Hensoldt

Very weak diversification

The 3 months correlation between Rheinmetall and Hensoldt is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG ADR and Hensoldt AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hensoldt AG and Rheinmetall 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 Rheinmetall AG ADR are associated (or correlated) with Hensoldt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hensoldt AG has no effect on the direction of Rheinmetall i.e., Rheinmetall and Hensoldt go up and down completely randomly.

Pair Corralation between Rheinmetall and Hensoldt

Assuming the 90 days horizon Rheinmetall is expected to generate 1.29 times less return on investment than Hensoldt. But when comparing it to its historical volatility, Rheinmetall AG ADR is 1.18 times less risky than Hensoldt. It trades about 0.09 of its potential returns per unit of risk. Hensoldt AG is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,375  in Hensoldt AG on September 14, 2024 and sell it today you would earn a total of  576.00  from holding Hensoldt AG or generate 17.07% return on investment over 90 days.

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

Rheinmetall AG ADR  vs.  Hensoldt AG

Rheinmetall AG ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental drivers, Rheinmetall showed solid returns over the last few months and may actually be approaching a breakup point.

Hensoldt AG

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hensoldt AG are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Hensoldt reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rheinmetall and Hensoldt

The main advantage of trading using opposite Rheinmetall and Hensoldt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rheinmetall position performs unexpectedly, Hensoldt 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 Hensoldt will offset losses from the drop in Hensoldt's long position.

The idea behind Rheinmetall AG ADR and Hensoldt AG 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.