Correlation Between General Dynamics and Boeing

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

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

Diversification Opportunities for General Dynamics and Boeing

-0.32

Correlation Coefficient

General Dynamics  Boeing

Very good diversification

The 3 months correlation between General and Boeing is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and The Boeing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boeing 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 Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing has no effect on the direction of General Dynamics i.e., General Dynamics and Boeing go up and down completely randomly.

Pair Corralation between General Dynamics and Boeing

Assuming the 90 days trading horizon General Dynamics is expected to under-perform the Boeing. But the stock apears to be less risky and, when comparing its historical volatility, General Dynamics is 1.33 times less risky than Boeing. The stock trades about -0.1 of its potential returns per unit of risk. The The Boeing is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  89,600  in The Boeing on September 23, 2024 and sell it today you would earn a total of  20,163  from holding The Boeing or generate 22.5% return on investment over 90 days.

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

General Dynamics  vs.  The Boeing

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. Despite somewhat strong fundamental drivers, General Dynamics is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Boeing

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Boeing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Dynamics and Boeing

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

The idea behind General Dynamics and The Boeing 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.