Correlation Between General Dynamics and Elbit Systems

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

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

Diversification Opportunities for General Dynamics and Elbit Systems

-0.76

Correlation Coefficient

General Dynamics  Elbit Systems

Pay attention - limited upside

The 3 months correlation between General and Elbit is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Elbit Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elbit Systems 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 Elbit Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elbit Systems has no effect on the direction of General Dynamics i.e., General Dynamics and Elbit Systems go up and down completely randomly.

Pair Corralation between General Dynamics and Elbit Systems

Allowing for the 90-day total investment horizon General Dynamics is expected to under-perform the Elbit Systems. But the stock apears to be less risky and, when comparing its historical volatility, General Dynamics is 1.34 times less risky than Elbit Systems. The stock trades about -0.15 of its potential returns per unit of risk. The Elbit Systems is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  19,373  in Elbit Systems on September 24, 2024 and sell it today you would earn a total of  6,405  from holding Elbit Systems or generate 33.06% return on investment over 90 days.

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

General Dynamics  vs.  Elbit Systems

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 abnormal performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Elbit Systems

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Elbit Systems are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal essential indicators, Elbit Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Dynamics and Elbit Systems

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

The idea behind General Dynamics and Elbit Systems 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.