Correlation Between Rolls Royce and ConocoPhillips

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

Diversification Opportunities for Rolls Royce and ConocoPhillips

0.01

Correlation Coefficient

Rolls Royce  ConocoPhillips

Significant diversification

The 3 months correlation between Rolls and ConocoPhillips is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings plc and ConocoPhillips in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConocoPhillips 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 ConocoPhillips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConocoPhillips has no effect on the direction of Rolls Royce i.e., Rolls Royce and ConocoPhillips go up and down completely randomly.

Pair Corralation between Rolls Royce and ConocoPhillips

Assuming the 90 days horizon Rolls Royce Holdings plc is expected to generate 1.24 times more return on investment than ConocoPhillips. However, Rolls Royce is 1.24 times more volatile than ConocoPhillips. It trades about 0.25 of its potential returns per unit of risk. ConocoPhillips is currently generating about -0.45 per unit of risk. If you would invest  650.00  in Rolls Royce Holdings plc on September 19, 2024 and sell it today you would earn a total of  64.00  from holding Rolls Royce Holdings plc or generate 9.85% return on investment over 90 days.

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

Rolls Royce Holdings plc  vs.  ConocoPhillips

Rolls Royce Holdings

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Rolls Royce reported solid returns over the last few months and may actually be approaching a breakup point.

ConocoPhillips

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Rolls Royce and ConocoPhillips

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

The idea behind Rolls Royce Holdings plc and ConocoPhillips 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.