Correlation Between GE Aerospace and Digital Transformation

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

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

Diversification Opportunities for GE Aerospace and Digital Transformation

-0.48

Correlation Coefficient

GE Aerospace  Digital Transformation

Very good diversification

The 3 months correlation between GE Aerospace and Digital is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and Digital Transformation Opportu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Transformation and GE Aerospace 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 GE Aerospace are associated (or correlated) with Digital Transformation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Transformation has no effect on the direction of GE Aerospace i.e., GE Aerospace and Digital Transformation go up and down completely randomly.

Pair Corralation between GE Aerospace and Digital Transformation

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 15.72 times less return on investment than Digital Transformation. But when comparing it to its historical volatility, GE Aerospace is 13.42 times less risky than Digital Transformation. It trades about 0.15 of its potential returns per unit of risk. Digital Transformation Opportunities is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  5.00  in Digital Transformation Opportunities on September 17, 2024 and sell it today you would earn a total of  12.00  from holding Digital Transformation Opportunities or generate 240.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	18.75%
Values	Daily Returns

GE Aerospace  vs.  Digital Transformation Opportu

GE Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GE Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Digital Transformation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Digital Transformation Opportunities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Digital Transformation is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with GE Aerospace and Digital Transformation

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

The idea behind GE Aerospace and Digital Transformation Opportunities 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.