Correlation Between Rolls Royce and Freeport McMoRan

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

Diversification Opportunities for Rolls Royce and Freeport McMoRan

-0.59
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Rolls and Freeport is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan 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 Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of Rolls Royce i.e., Rolls Royce and Freeport McMoRan go up and down completely randomly.

Pair Corralation between Rolls Royce and Freeport McMoRan

Assuming the 90 days trading horizon Rolls Royce Holdings PLC is expected to generate 1.06 times more return on investment than Freeport McMoRan. However, Rolls Royce is 1.06 times more volatile than Freeport McMoRan. It trades about 0.16 of its potential returns per unit of risk. Freeport McMoRan is currently generating about 0.01 per unit of risk. If you would invest  9,320  in Rolls Royce Holdings PLC on September 22, 2024 and sell it today you would earn a total of  48,220  from holding Rolls Royce Holdings PLC or generate 517.38% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy99.6%
ValuesDaily Returns

Rolls Royce Holdings PLC  vs.  Freeport McMoRan

 Performance 
       Timeline  
Rolls Royce Holdings 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 6 (%) 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.
Freeport McMoRan 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Freeport McMoRan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Rolls Royce and Freeport McMoRan Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Rolls Royce and Freeport McMoRan

The main advantage of trading using opposite Rolls Royce and Freeport McMoRan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rolls Royce position performs unexpectedly, Freeport McMoRan 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 Freeport McMoRan will offset losses from the drop in Freeport McMoRan's long position.
The idea behind Rolls Royce Holdings PLC and Freeport McMoRan 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 Stocks Directory module to find actively traded stocks across global markets.

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