Correlation Between Hexcel and GE Aerospace

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

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

Diversification Opportunities for Hexcel and GE Aerospace

-0.25

Correlation Coefficient

Hexcel  GE Aerospace

Very good diversification

The 3 months correlation between Hexcel and GE Aerospace is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace and Hexcel 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 Hexcel are associated (or correlated) with GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of Hexcel i.e., Hexcel and GE Aerospace go up and down completely randomly.

Pair Corralation between Hexcel and GE Aerospace

Considering the 90-day investment horizon Hexcel is expected to generate 0.81 times more return on investment than GE Aerospace. However, Hexcel is 1.23 times less risky than GE Aerospace. It trades about 0.03 of its potential returns per unit of risk. GE Aerospace is currently generating about -0.05 per unit of risk. If you would invest  6,133  in Hexcel on September 26, 2024 and sell it today you would earn a total of  148.00  from holding Hexcel or generate 2.41% return on investment over 90 days.

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

Hexcel  vs.  GE Aerospace

Hexcel

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hexcel are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Hexcel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

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 rather sound technical and fundamental indicators, GE Aerospace is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Hexcel and GE Aerospace

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

The idea behind Hexcel and GE Aerospace 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.