Correlation Between General Dynamics and Axon Enterprise

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

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

Diversification Opportunities for General Dynamics and Axon Enterprise

-0.35

Correlation Coefficient

General Dynamics  Axon Enterprise

Very good diversification

The 3 months correlation between General and Axon is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Axon Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axon Enterprise 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 Axon Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axon Enterprise has no effect on the direction of General Dynamics i.e., General Dynamics and Axon Enterprise go up and down completely randomly.

Pair Corralation between General Dynamics and Axon Enterprise

Allowing for the 90-day total investment horizon General Dynamics is expected to under-perform the Axon Enterprise. But the stock apears to be less risky and, when comparing its historical volatility, General Dynamics is 2.72 times less risky than Axon Enterprise. The stock trades about -0.05 of its potential returns per unit of risk. The Axon Enterprise is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  36,497  in Axon Enterprise on August 30, 2024 and sell it today you would earn a total of  26,999  from holding Axon Enterprise or generate 73.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

General Dynamics  vs.  Axon Enterprise

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 rather sound fundamental indicators, General Dynamics is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Axon Enterprise

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Axon Enterprise are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Axon Enterprise displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Dynamics and Axon Enterprise

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

The idea behind General Dynamics and Axon Enterprise 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.