Correlation Between Raytheon Technologies and FedEx

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

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

Diversification Opportunities for Raytheon Technologies and FedEx

0.6

Correlation Coefficient

Raytheon Technologies  FedEx

Poor diversification

The 3 months correlation between Raytheon and FedEx is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies and FedEx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FedEx and Raytheon Technologies 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 Raytheon Technologies are associated (or correlated) with FedEx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FedEx has no effect on the direction of Raytheon Technologies i.e., Raytheon Technologies and FedEx go up and down completely randomly.

Pair Corralation between Raytheon Technologies and FedEx

Assuming the 90 days trading horizon Raytheon Technologies is expected to generate 1.74 times less return on investment than FedEx. But when comparing it to its historical volatility, Raytheon Technologies is 1.05 times less risky than FedEx. It trades about 0.11 of its potential returns per unit of risk. FedEx is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  142,800  in FedEx on September 28, 2024 and sell it today you would earn a total of  25,512  from holding FedEx or generate 17.87% return on investment over 90 days.

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

Raytheon Technologies  vs.  FedEx

Raytheon Technologies

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 8 (%) 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.

FedEx

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FedEx are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, FedEx sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Raytheon Technologies and FedEx

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

The idea behind Raytheon Technologies and FedEx 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.