Correlation Between General Dynamics and Planet Labs

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

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

Diversification Opportunities for General Dynamics and Planet Labs

-0.87

Correlation Coefficient

General Dynamics  Planet Labs

Pay attention - limited upside

The 3 months correlation between General and Planet is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Planet Labs PBC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Planet Labs PBC 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 Planet Labs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Planet Labs PBC has no effect on the direction of General Dynamics i.e., General Dynamics and Planet Labs go up and down completely randomly.

Pair Corralation between General Dynamics and Planet Labs

Allowing for the 90-day total investment horizon General Dynamics is expected to under-perform the Planet Labs. But the stock apears to be less risky and, when comparing its historical volatility, General Dynamics is 2.97 times less risky than Planet Labs. The stock trades about -0.16 of its potential returns per unit of risk. The Planet Labs PBC is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  205.00  in Planet Labs PBC on September 23, 2024 and sell it today you would earn a total of  199.00  from holding Planet Labs PBC or generate 97.07% return on investment over 90 days.

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

General Dynamics  vs.  Planet Labs PBC

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.

Planet Labs PBC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Planet Labs PBC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Planet Labs disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Dynamics and Planet Labs

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

The idea behind General Dynamics and Planet Labs PBC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.