Correlation Between Transdigm Group and Rolls Royce

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

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

Diversification Opportunities for Transdigm Group and Rolls Royce

0.45

Correlation Coefficient

Transdigm Group  Rolls Royce

Very weak diversification

The 3 months correlation between Transdigm and Rolls is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Transdigm Group Incorporated and Rolls Royce Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings and Transdigm Group 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 Transdigm Group Incorporated 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 Transdigm Group i.e., Transdigm Group and Rolls Royce go up and down completely randomly.

Pair Corralation between Transdigm Group and Rolls Royce

Considering the 90-day investment horizon Transdigm Group Incorporated is expected to under-perform the Rolls Royce. But the stock apears to be less risky and, when comparing its historical volatility, Transdigm Group Incorporated is 1.03 times less risky than Rolls Royce. The stock trades about 0.0 of its potential returns per unit of risk. The Rolls Royce Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  650.00  in Rolls Royce Holdings on September 12, 2024 and sell it today you would earn a total of  74.00  from holding Rolls Royce Holdings or generate 11.38% return on investment over 90 days.

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

Transdigm Group Incorporated  vs.  Rolls Royce Holdings

Transdigm Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Rolls Royce Holdings

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Rolls Royce may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Transdigm Group and Rolls Royce

The main advantage of trading using opposite Transdigm Group and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transdigm Group 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 Transdigm Group Incorporated and Rolls Royce Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.