Correlation Between GE Aerospace and First Trust
Can any of the company-specific risk be diversified away by investing in both GE Aerospace and First Trust 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 GE Aerospace and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GE Aerospace and First Trust Indxx, you can compare the effects of market volatilities on GE Aerospace and First Trust 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 GE Aerospace with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of GE Aerospace and First Trust.
Diversification Opportunities for GE Aerospace and First Trust
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GE Aerospace and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx and GE Aerospace 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 GE Aerospace are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Indxx has no effect on the direction of GE Aerospace i.e., GE Aerospace and First Trust go up and down completely randomly.
Pair Corralation between GE Aerospace and First Trust
Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 2.01 times more return on investment than First Trust. However, GE Aerospace is 2.01 times more volatile than First Trust Indxx. It trades about 0.11 of its potential returns per unit of risk. First Trust Indxx is currently generating about -0.01 per unit of risk. If you would invest 17,405 in GE Aerospace on August 30, 2024 and sell it today you would earn a total of 655.00 from holding GE Aerospace or generate 3.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
GE Aerospace vs. First Trust Indxx
Performance |
| Timeline |
| GE Aerospace |
| First Trust Indxx |
GE Aerospace and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GE Aerospace and First Trust
The main advantage of trading using opposite GE Aerospace and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GE Aerospace position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| GE Aerospace vs. Illinois Tool Works | GE Aerospace vs. Dover | GE Aerospace vs. Cummins | GE Aerospace vs. Eaton PLC |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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