Correlation Between Textron and GE Aerospace

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

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

Diversification Opportunities for Textron and GE Aerospace

0.87

Correlation Coefficient

Textron  GE Aerospace

Very poor diversification

The 3 months correlation between Textron and GE Aerospace is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Textron and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace and Textron 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 Textron 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 Textron i.e., Textron and GE Aerospace go up and down completely randomly.

Pair Corralation between Textron and GE Aerospace

Considering the 90-day investment horizon Textron is expected to under-perform the GE Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, Textron is 1.51 times less risky than GE Aerospace. The stock trades about -0.34 of its potential returns per unit of risk. The GE Aerospace is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  18,460  in GE Aerospace on September 27, 2024 and sell it today you would lose (1,311) from holding GE Aerospace or give up 7.1% of portfolio value over 90 days.

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

Textron  vs.  GE Aerospace

Textron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Textron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private 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 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.

Pair Trading with Textron and GE Aerospace

The main advantage of trading using opposite Textron and GE Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Textron 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 Textron 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.