Correlation Between VirTra and Rheinmetall

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

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

Diversification Opportunities for VirTra and Rheinmetall

0.76

Correlation Coefficient

VirTra  Rheinmetall

Poor diversification

The 3 months correlation between VirTra and Rheinmetall is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding VirTra Inc 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 VirTra 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 VirTra Inc 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 VirTra i.e., VirTra and Rheinmetall go up and down completely randomly.

Pair Corralation between VirTra and Rheinmetall

Given the investment horizon of 90 days VirTra is expected to generate 1.39 times less return on investment than Rheinmetall. In addition to that, VirTra is 2.86 times more volatile than Rheinmetall AG ADR. It trades about 0.14 of its total potential returns per unit of risk. Rheinmetall AG ADR is currently generating about 0.57 per unit of volatility. If you would invest  10,172  in Rheinmetall AG ADR on September 5, 2024 and sell it today you would earn a total of  3,049  from holding Rheinmetall AG ADR or generate 29.97% return on investment over 90 days.

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

VirTra Inc  vs.  Rheinmetall AG ADR

VirTra Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VirTra Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, VirTra demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Rheinmetall AG ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Rheinmetall showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VirTra and Rheinmetall

The main advantage of trading using opposite VirTra and Rheinmetall positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VirTra 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 VirTra Inc 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.