Correlation Between Sembcorp Marine and Rolls Royce

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

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

Diversification Opportunities for Sembcorp Marine and Rolls Royce

-0.2

Correlation Coefficient

Sembcorp Marine  Rolls Royce

Good diversification

The 3 months correlation between Sembcorp and Rolls is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Sembcorp Marine and Rolls Royce Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings and Sembcorp Marine 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 Sembcorp Marine are associated (or correlated) with Rolls Royce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rolls Royce Holdings has no effect on the direction of Sembcorp Marine i.e., Sembcorp Marine and Rolls Royce go up and down completely randomly.

Pair Corralation between Sembcorp Marine and Rolls Royce

Assuming the 90 days horizon Sembcorp Marine is expected to under-perform the Rolls Royce. In addition to that, Sembcorp Marine is 1.29 times more volatile than Rolls Royce Holdings plc. It trades about -0.01 of its total potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.02 per unit of volatility. If you would invest  0.35  in Rolls Royce Holdings plc on September 4, 2024 and sell it today you would earn a total of  0.00  from holding Rolls Royce Holdings plc or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Sembcorp Marine  vs.  Rolls Royce Holdings plc

Sembcorp Marine

Risk-Adjusted Performance

9 of 100

OK

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

Rolls Royce Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rolls Royce Holdings plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Sembcorp Marine and Rolls Royce

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

The idea behind Sembcorp Marine and Rolls Royce Holdings plc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.