Correlation Between Rheinmetall and Progressive Corp

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

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

Diversification Opportunities for Rheinmetall and Progressive Corp

-0.92

Correlation Coefficient

Rheinmetall  Progressive Corp

Pay attention - limited upside

The 3 months correlation between Rheinmetall and Progressive is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG and Progressive Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Progressive Corp and Rheinmetall 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 Rheinmetall AG are associated (or correlated) with Progressive Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Progressive Corp has no effect on the direction of Rheinmetall i.e., Rheinmetall and Progressive Corp go up and down completely randomly.

Pair Corralation between Rheinmetall and Progressive Corp

Assuming the 90 days trading horizon Rheinmetall AG is expected to generate 2.22 times more return on investment than Progressive Corp. However, Rheinmetall is 2.22 times more volatile than Progressive Corp. It trades about -0.04 of its potential returns per unit of risk. Progressive Corp is currently generating about -0.18 per unit of risk. If you would invest  52,940  in Rheinmetall AG on February 2, 2024 and sell it today you would lose (1,340) from holding Rheinmetall AG or give up 2.53% of portfolio value over 90 days.

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

Rheinmetall AG  vs.  Progressive Corp

Rheinmetall AG

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Rheinmetall unveiled solid returns over the last few months and may actually be approaching a breakup point.

Progressive Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Progressive Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic 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 Rheinmetall and Progressive Corp

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

The idea behind Rheinmetall AG and Progressive Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.