Correlation Between Rolls Royce and SBM Offshore

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

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

Diversification Opportunities for Rolls Royce and SBM Offshore

-0.1

Correlation Coefficient

Rolls Royce  SBM Offshore

Good diversification

The 3 months correlation between Rolls and SBM is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and SBM Offshore NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM Offshore NV and Rolls Royce 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 Rolls Royce Holdings PLC are associated (or correlated) with SBM Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM Offshore NV has no effect on the direction of Rolls Royce i.e., Rolls Royce and SBM Offshore go up and down completely randomly.

Pair Corralation between Rolls Royce and SBM Offshore

Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to generate 1.04 times more return on investment than SBM Offshore. However, Rolls Royce is 1.04 times more volatile than SBM Offshore NV. It trades about 0.04 of its potential returns per unit of risk. SBM Offshore NV is currently generating about 0.03 per unit of risk. If you would invest  56,040  in Rolls Royce Holdings PLC on September 26, 2024 and sell it today you would earn a total of  1,520  from holding Rolls Royce Holdings PLC or generate 2.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.67%
Values	Daily Returns

Rolls Royce Holdings PLC  vs.  SBM Offshore NV

Rolls Royce Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 7 (%) 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.

SBM Offshore NV

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, SBM Offshore is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Rolls Royce and SBM Offshore

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

The idea behind Rolls Royce Holdings PLC and SBM Offshore NV 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.