Correlation Between Amada and Rolls-Royce Holdings

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

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

Diversification Opportunities for Amada and Rolls-Royce Holdings

-0.52

Correlation Coefficient

Amada  Rolls-Royce Holdings

Excellent diversification

The 3 months correlation between Amada and Rolls-Royce is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Amada Co 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 Amada 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 Amada Co are associated (or correlated) with Rolls-Royce Holdings. 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 Amada i.e., Amada and Rolls-Royce Holdings go up and down completely randomly.

Pair Corralation between Amada and Rolls-Royce Holdings

Assuming the 90 days horizon Amada Co is expected to under-perform the Rolls-Royce Holdings. But the otc stock apears to be less risky and, when comparing its historical volatility, Amada Co is 2.21 times less risky than Rolls-Royce Holdings. The otc stock trades about -0.12 of its potential returns per unit of risk. The Rolls Royce Holdings plc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  0.45  in Rolls Royce Holdings plc on January 20, 2024 and sell it today you would lose (0.02) from holding Rolls Royce Holdings plc or give up 4.44% of portfolio value over 90 days.

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

Amada Co  vs.  Rolls Royce Holdings plc

Amada

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amada Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Amada may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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 nearly stable fundamental indicators, Rolls-Royce Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Amada and Rolls-Royce Holdings

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

The idea behind Amada Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.