Correlation Between Capital Income and GE Aerospace
Can any of the company-specific risk be diversified away by investing in both Capital Income 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 Capital Income and GE Aerospace into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital Income Builder and GE Aerospace, you can compare the effects of market volatilities on Capital Income 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 Capital Income with a short position of GE Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Income and GE Aerospace.
Diversification Opportunities for Capital Income and GE Aerospace
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Capital and GE Aerospace is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Capital Income Builder and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace and Capital Income 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 Capital Income Builder 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 Capital Income i.e., Capital Income and GE Aerospace go up and down completely randomly.
Pair Corralation between Capital Income and GE Aerospace
Assuming the 90 days horizon Capital Income is expected to generate 5.63 times less return on investment than GE Aerospace. But when comparing it to its historical volatility, Capital Income Builder is 3.32 times less risky than GE Aerospace. It trades about 0.08 of its potential returns per unit of risk. GE Aerospace is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 7,466 in GE Aerospace on November 27, 2024 and sell it today you would earn a total of 12,405 from holding GE Aerospace or generate 166.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital Income Builder vs. GE Aerospace
Performance |
| Timeline |
| Capital Income Builder |
| GE Aerospace |
Capital Income and GE Aerospace Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital Income and GE Aerospace
The main advantage of trading using opposite Capital Income and GE Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Income 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.| Capital Income vs. Goldman Sachs Small | Capital Income vs. Ashmore Emerging Markets | Capital Income vs. Transamerica International Small | Capital Income vs. Franklin Small Cap |
| GE Aerospace vs. Illinois Tool Works | GE Aerospace vs. Dover | GE Aerospace vs. Cummins | GE Aerospace vs. Eaton PLC |
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.
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