Correlation Between GE Aerospace and Santos

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

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

Diversification Opportunities for GE Aerospace and Santos

0.76

Correlation Coefficient

GE Aerospace  Santos

Poor diversification

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

Pair Corralation between GE Aerospace and Santos

Allowing for the 90-day total investment horizon GE Aerospace is expected to under-perform the Santos. But the stock apears to be less risky and, when comparing its historical volatility, GE Aerospace is 3.46 times less risky than Santos. The stock trades about -0.19 of its potential returns per unit of risk. The Santos is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  445.00  in Santos on September 18, 2024 and sell it today you would lose (5.00) from holding Santos or give up 1.12% of portfolio value over 90 days.

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

GE Aerospace  vs.  Santos

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.

Santos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Santos has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Santos is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GE Aerospace and Santos

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

The idea behind GE Aerospace and Santos 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.