Correlation Between Thales SA and Rheinmetall

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

By analyzing existing cross correlation between Thales SA ADR and Rheinmetall AG ADR, you can compare the effects of market volatilities on Thales SA and Rheinmetall 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 Thales SA with a short position of Rheinmetall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Thales SA and Rheinmetall.

Diversification Opportunities for Thales SA and Rheinmetall

-0.67

Correlation Coefficient

Thales SA  Rheinmetall

Excellent diversification

The 3 months correlation between Thales and Rheinmetall is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Thales SA ADR and Rheinmetall AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG ADR and Thales SA 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 Thales SA ADR are associated (or correlated) with Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG ADR has no effect on the direction of Thales SA i.e., Thales SA and Rheinmetall go up and down completely randomly.

Pair Corralation between Thales SA and Rheinmetall

Assuming the 90 days horizon Thales SA ADR is expected to under-perform the Rheinmetall. But the pink sheet apears to be less risky and, when comparing its historical volatility, Thales SA ADR is 1.39 times less risky than Rheinmetall. The pink sheet trades about -0.11 of its potential returns per unit of risk. The Rheinmetall AG ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  11,503  in Rheinmetall AG ADR on September 13, 2024 and sell it today you would earn a total of  1,223  from holding Rheinmetall AG ADR or generate 10.63% return on investment over 90 days.

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

Thales SA ADR  vs.  Rheinmetall AG ADR

Thales SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thales SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Rheinmetall AG ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Rheinmetall may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Thales SA and Rheinmetall

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

The idea behind Thales SA ADR and Rheinmetall AG ADR 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.