Correlation Between General Dynamics and Textron

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

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

Diversification Opportunities for General Dynamics and Textron

0.38

Correlation Coefficient

General Dynamics  Textron

Weak diversification

The 3 months correlation between General and Textron is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Textron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Textron and General Dynamics 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 General Dynamics are associated (or correlated) with Textron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Textron has no effect on the direction of General Dynamics i.e., General Dynamics and Textron go up and down completely randomly.

Pair Corralation between General Dynamics and Textron

Assuming the 90 days horizon General Dynamics is expected to generate 0.84 times more return on investment than Textron. However, General Dynamics is 1.19 times less risky than Textron. It trades about 0.05 of its potential returns per unit of risk. Textron is currently generating about 0.04 per unit of risk. If you would invest  440,566  in General Dynamics on September 14, 2024 and sell it today you would earn a total of  113,546  from holding General Dynamics or generate 25.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Dynamics  vs.  Textron

General Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, General Dynamics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Textron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Textron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Textron is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with General Dynamics and Textron

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

The idea behind General Dynamics and Textron 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.