Correlation Between Rheinmetall and Transdigm Group

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

Diversification Opportunities for Rheinmetall and Transdigm Group

-0.74

Correlation Coefficient

Rheinmetall  Transdigm Group

Pay attention - limited upside

The 3 months correlation between Rheinmetall and Transdigm is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG ADR and Transdigm Group Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transdigm Group 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 Transdigm Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transdigm Group has no effect on the direction of Rheinmetall i.e., Rheinmetall and Transdigm Group go up and down completely randomly.

Pair Corralation between Rheinmetall and Transdigm Group

Assuming the 90 days horizon Rheinmetall AG ADR is expected to generate 1.36 times more return on investment than Transdigm Group. However, Rheinmetall is 1.36 times more volatile than Transdigm Group Incorporated. It trades about 0.1 of its potential returns per unit of risk. Transdigm Group Incorporated is currently generating about -0.02 per unit of risk. If you would invest  11,557  in Rheinmetall AG ADR on September 14, 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	Weak
Accuracy	98.44%
Values	Daily Returns

Rheinmetall AG ADR  vs.  Transdigm Group Incorporated

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.

Transdigm Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transdigm Group Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Transdigm Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Rheinmetall and Transdigm Group

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

The idea behind Rheinmetall AG ADR and Transdigm Group Incorporated 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 Commodity Directory module to find actively traded commodities issued by global exchanges.