Correlation Between Burford Capital and Rolls Royce

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Can any of the company-specific risk be diversified away by investing in both Burford Capital and Rolls Royce 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 Burford Capital and Rolls Royce into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Burford Capital and Rolls Royce Holdings, you can compare the effects of market volatilities on Burford Capital and Rolls Royce 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 Burford Capital with a short position of Rolls Royce. Check out your portfolio center. Please also check ongoing floating volatility patterns of Burford Capital and Rolls Royce.

Diversification Opportunities for Burford Capital and Rolls Royce

  Correlation Coefficient

Very poor diversification

The 3 months correlation between Burford and Rolls is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Burford Capital and Rolls Royce Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rolls Royce Holdings and Burford Capital 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 Burford Capital are associated (or correlated) with Rolls Royce. 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 Burford Capital i.e., Burford Capital and Rolls Royce go up and down completely randomly.

Pair Corralation between Burford Capital and Rolls Royce

Considering the 90-day investment horizon Burford Capital is expected to generate 0.77 times more return on investment than Rolls Royce. However, Burford Capital is 1.29 times less risky than Rolls Royce. It trades about 0.27 of its potential returns per unit of risk. Rolls Royce Holdings is currently generating about 0.14 per unit of risk. If you would invest  809.00  in Burford Capital on September 3, 2022 and sell it today you would earn a total of  110.00  from holding Burford Capital or generate 13.6% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

Burford Capital  vs.  Rolls Royce Holdings

 Performance (%) 
Burford Capital 
Burford Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Burford Capital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Burford Capital is not utilizing all of its potentials. The new stock price agitation, may contribute to short-term losses for the retail investors.

Burford Price Channel

Rolls Royce Holdings 
Rolls Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Rolls Royce Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Rolls Royce showed solid returns over the last few months and may actually be approaching a breakup point.

Rolls Price Channel

Burford Capital and Rolls Royce Volatility Contrast

   Predicted Return Density   

Pair Trading with Burford Capital and Rolls Royce

The main advantage of trading using opposite Burford Capital and Rolls Royce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Burford Capital position performs unexpectedly, Rolls Royce 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 will offset losses from the drop in Rolls Royce's long position.
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The idea behind Burford Capital and Rolls Royce Holdings 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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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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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