Correlation Between GE Aerospace and Rockwell Automation

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

By analyzing existing cross correlation between GE Aerospace and Rockwell Automation, you can compare the effects of market volatilities on GE Aerospace and Rockwell Automation 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 Rockwell Automation. Check out your portfolio center. Please also check ongoing floating volatility patterns of GE Aerospace and Rockwell Automation.

Diversification Opportunities for GE Aerospace and Rockwell Automation

0.23

Correlation Coefficient

GE Aerospace  Rockwell Automation

Modest diversification

The 3 months correlation between GE Aerospace and Rockwell is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and Rockwell Automation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rockwell Automation 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 Rockwell Automation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rockwell Automation has no effect on the direction of GE Aerospace i.e., GE Aerospace and Rockwell Automation go up and down completely randomly.

Pair Corralation between GE Aerospace and Rockwell Automation

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 1.75 times less return on investment than Rockwell Automation. But when comparing it to its historical volatility, GE Aerospace is 1.04 times less risky than Rockwell Automation. It trades about 0.08 of its potential returns per unit of risk. Rockwell Automation is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  25,549  in Rockwell Automation on September 4, 2024 and sell it today you would earn a total of  4,163  from holding Rockwell Automation or generate 16.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

GE Aerospace  vs.  Rockwell Automation

GE Aerospace

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, GE Aerospace may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Rockwell Automation

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rockwell Automation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Rockwell Automation disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GE Aerospace and Rockwell Automation

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

The idea behind GE Aerospace and Rockwell Automation 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.