Correlation Between Rheinmetall and Raytheon Technologies

Can any of the company-specific risk be diversified away by investing in both Rheinmetall and Raytheon Technologies 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 Raytheon Technologies 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 Raytheon Technologies Corp, you can compare the effects of market volatilities on Rheinmetall and Raytheon Technologies 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 Raytheon Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rheinmetall and Raytheon Technologies.

Diversification Opportunities for Rheinmetall and Raytheon Technologies

-0.48

Correlation Coefficient

Rheinmetall  Raytheon Technologies

Very good diversification

The 3 months correlation between Rheinmetall and Raytheon is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG ADR and Raytheon Technologies Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytheon Technologies 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 Raytheon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytheon Technologies has no effect on the direction of Rheinmetall i.e., Rheinmetall and Raytheon Technologies go up and down completely randomly.

Pair Corralation between Rheinmetall and Raytheon Technologies

Assuming the 90 days horizon Rheinmetall AG ADR is expected to generate 1.97 times more return on investment than Raytheon Technologies. However, Rheinmetall is 1.97 times more volatile than Raytheon Technologies Corp. It trades about 0.1 of its potential returns per unit of risk. Raytheon Technologies Corp is currently generating about 0.0 per unit of risk. If you would invest  11,557  in Rheinmetall AG ADR on September 15, 2024 and sell it today you would earn a total of  1,568  from holding Rheinmetall AG ADR or generate 13.57% return on investment over 90 days.

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

Rheinmetall AG ADR  vs.  Raytheon Technologies Corp

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.

Raytheon Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Raytheon Technologies Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Raytheon Technologies is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Rheinmetall and Raytheon Technologies

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

The idea behind Rheinmetall AG ADR and Raytheon Technologies Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.