Correlation Between Raytheon Technologies and Hexcel
Can any of the company-specific risk be diversified away by investing in both Raytheon Technologies and Hexcel 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 Hexcel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Raytheon Technologies Corp and Hexcel, you can compare the effects of market volatilities on Raytheon Technologies and Hexcel 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 Hexcel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Raytheon Technologies and Hexcel.
Diversification Opportunities for Raytheon Technologies and Hexcel
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Raytheon and Hexcel is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies Corp and Hexcel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hexcel 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 Corp are associated (or correlated) with Hexcel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hexcel has no effect on the direction of Raytheon Technologies i.e., Raytheon Technologies and Hexcel go up and down completely randomly.
Pair Corralation between Raytheon Technologies and Hexcel
Assuming the 90 days horizon Raytheon Technologies is expected to generate 2.79 times less return on investment than Hexcel. But when comparing it to its historical volatility, Raytheon Technologies Corp is 1.21 times less risky than Hexcel. It trades about 0.07 of its potential returns per unit of risk. Hexcel is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 5,534 in Hexcel on August 31, 2024 and sell it today you would earn a total of 416.00 from holding Hexcel or generate 7.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Raytheon Technologies Corp vs. Hexcel
Performance |
| Timeline |
| Raytheon Technologies |
| Hexcel |
Raytheon Technologies and Hexcel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Raytheon Technologies and Hexcel
The main advantage of trading using opposite Raytheon Technologies and Hexcel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Raytheon Technologies position performs unexpectedly, Hexcel 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 Hexcel will offset losses from the drop in Hexcel's long position.The idea behind Raytheon Technologies Corp and Hexcel 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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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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