Correlation Between Rolls Royce and Park Electrochemical

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

Diversification Opportunities for Rolls Royce and Park Electrochemical

0.38

Correlation Coefficient

Rolls Royce  Park Electrochemical

Weak diversification

The 3 months correlation between Rolls and Park is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings PLC and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical 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 Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of Rolls Royce i.e., Rolls Royce and Park Electrochemical go up and down completely randomly.

Pair Corralation between Rolls Royce and Park Electrochemical

Assuming the 90 days horizon Rolls Royce Holdings PLC is expected to generate 0.87 times more return on investment than Park Electrochemical. However, Rolls Royce Holdings PLC is 1.14 times less risky than Park Electrochemical. It trades about 0.13 of its potential returns per unit of risk. Park Electrochemical is currently generating about 0.09 per unit of risk. If you would invest  645.00  in Rolls Royce Holdings PLC on September 12, 2024 and sell it today you would earn a total of  96.00  from holding Rolls Royce Holdings PLC or generate 14.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Rolls Royce Holdings PLC  vs.  Park Electrochemical

Rolls Royce Holdings

Risk-Adjusted Performance

10 of 100

OK

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.

Park Electrochemical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Park Electrochemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward-looking signals, Park Electrochemical may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rolls Royce and Park Electrochemical

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

The idea behind Rolls Royce Holdings PLC and Park Electrochemical 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..