Correlation Between GLG LIFE and Rolls-Royce Holdings

Can any of the company-specific risk be diversified away by investing in both GLG LIFE 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 GLG LIFE 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 GLG LIFE TECH and Rolls Royce Holdings plc, you can compare the effects of market volatilities on GLG LIFE 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 GLG LIFE with a short position of Rolls-Royce Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of GLG LIFE and Rolls-Royce Holdings.

Diversification Opportunities for GLG LIFE and Rolls-Royce Holdings

0.0

Correlation Coefficient

GLG LIFE  Rolls-Royce Holdings

Pay attention - limited upside

The 3 months correlation between GLG and Rolls-Royce is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding GLG LIFE TECH 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 GLG LIFE 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 GLG LIFE TECH 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 GLG LIFE i.e., GLG LIFE and Rolls-Royce Holdings go up and down completely randomly.

Pair Corralation between GLG LIFE and Rolls-Royce Holdings

Assuming the 90 days trading horizon GLG LIFE TECH is expected to generate 19.58 times more return on investment than Rolls-Royce Holdings. However, GLG LIFE is 19.58 times more volatile than Rolls Royce Holdings plc. It trades about 0.08 of its potential returns per unit of risk. Rolls Royce Holdings plc is currently generating about 0.15 per unit of risk. If you would invest  1.25  in GLG LIFE TECH on September 2, 2024 and sell it today you would earn a total of  0.75  from holding GLG LIFE TECH or generate 60.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

GLG LIFE TECH  vs.  Rolls Royce Holdings plc

GLG LIFE TECH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GLG LIFE TECH has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, GLG LIFE is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Rolls Royce Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings plc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Rolls-Royce Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GLG LIFE and Rolls-Royce Holdings

The main advantage of trading using opposite GLG LIFE and Rolls-Royce Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GLG LIFE 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 GLG LIFE TECH 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.