Correlation Between Rolls Royce and Moog

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

Diversification Opportunities for Rolls Royce and Moog

0.4

Correlation Coefficient

Rolls Royce  Moog

Very weak diversification

The 3 months correlation between Rolls and Moog is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Moog Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moog Inc 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 Moog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moog Inc has no effect on the direction of Rolls Royce i.e., Rolls Royce and Moog go up and down completely randomly.

Pair Corralation between Rolls Royce and Moog

Assuming the 90 days horizon Rolls Royce Holdings PLC is expected to generate 1.01 times more return on investment than Moog. However, Rolls Royce is 1.01 times more volatile than Moog Inc. It trades about 0.17 of its potential returns per unit of risk. Moog Inc is currently generating about 0.15 per unit of risk. If you would invest  105.00  in Rolls Royce Holdings PLC on September 12, 2024 and sell it today you would earn a total of  636.00  from holding Rolls Royce Holdings PLC or generate 605.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	53.04%
Values	Daily Returns

Rolls Royce Holdings PLC  vs.  Moog Inc

Rolls Royce Holdings

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Rolls Royce reported solid returns over the last few months and may actually be approaching a breakup point.

Moog Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Moog Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Moog sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rolls Royce and Moog

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

The idea behind Rolls Royce Holdings PLC and Moog Inc 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.