Correlation Between Charter Communications and General Dynamics
Can any of the company-specific risk be diversified away by investing in both Charter Communications and General Dynamics 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 Charter Communications and General Dynamics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Charter Communications and General Dynamics, you can compare the effects of market volatilities on Charter Communications and General Dynamics 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 Charter Communications with a short position of General Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Charter Communications and General Dynamics.
Diversification Opportunities for Charter Communications and General Dynamics
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Charter and General is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Charter Communications 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 Charter Communications are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Charter Communications i.e., Charter Communications and General Dynamics go up and down completely randomly.
Pair Corralation between Charter Communications and General Dynamics
Assuming the 90 days trading horizon Charter Communications is expected to generate 2.04 times less return on investment than General Dynamics. In addition to that, Charter Communications is 1.72 times more volatile than General Dynamics. It trades about 0.03 of its total potential returns per unit of risk. General Dynamics is currently generating about 0.12 per unit of volatility. If you would invest 102,092 in General Dynamics on September 12, 2024 and sell it today you would earn a total of 63,094 from holding General Dynamics or generate 61.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 88.39% |
| Values | Daily Returns |
Charter Communications vs. General Dynamics
Performance |
| Timeline |
| Charter Communications |
| General Dynamics |
Charter Communications and General Dynamics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Charter Communications and General Dynamics
The main advantage of trading using opposite Charter Communications and General Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications position performs unexpectedly, General Dynamics 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 General Dynamics will offset losses from the drop in General Dynamics' long position.The idea behind Charter Communications and General Dynamics 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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