Correlation Between Ross Stores and Raytheon Technologies

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

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

Diversification Opportunities for Ross Stores and Raytheon Technologies

0.25

Correlation Coefficient

Ross Stores  Raytheon Technologies

Modest diversification

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

Pair Corralation between Ross Stores and Raytheon Technologies

Assuming the 90 days trading horizon Ross Stores is expected to generate 1.14 times more return on investment than Raytheon Technologies. However, Ross Stores is 1.14 times more volatile than Raytheon Technologies. It trades about 0.1 of its potential returns per unit of risk. Raytheon Technologies is currently generating about 0.07 per unit of risk. If you would invest  42,734  in Ross Stores on September 12, 2024 and sell it today you would earn a total of  4,134  from holding Ross Stores or generate 9.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Ross Stores  vs.  Raytheon Technologies

Ross Stores

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Raytheon Technologies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Raytheon Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ross Stores and Raytheon Technologies

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

The idea behind Ross Stores and Raytheon Technologies 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.