Correlation Between General Electric and Otis Worldwide
Can any of the company-specific risk be diversified away by investing in both General Electric and Otis Worldwide 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 General Electric and Otis Worldwide into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Electric and Otis Worldwide, you can compare the effects of market volatilities on General Electric and Otis Worldwide 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 General Electric with a short position of Otis Worldwide. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Electric and Otis Worldwide.
Diversification Opportunities for General Electric and Otis Worldwide
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between General and Otis is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Otis Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otis Worldwide and General Electric 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 General Electric are associated (or correlated) with Otis Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otis Worldwide has no effect on the direction of General Electric i.e., General Electric and Otis Worldwide go up and down completely randomly.
Pair Corralation between General Electric and Otis Worldwide
Assuming the 90 days trading horizon General Electric is expected to generate 1.49 times less return on investment than Otis Worldwide. In addition to that, General Electric is 1.5 times more volatile than Otis Worldwide. It trades about 0.09 of its total potential returns per unit of risk. Otis Worldwide is currently generating about 0.2 per unit of volatility. If you would invest 5,811 in Otis Worldwide on September 2, 2024 and sell it today you would earn a total of 316.00 from holding Otis Worldwide or generate 5.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 90.0% |
| Values | Daily Returns |
General Electric vs. Otis Worldwide
Performance |
| Timeline |
| General Electric |
| Otis Worldwide |
General Electric and Otis Worldwide Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with General Electric and Otis Worldwide
The main advantage of trading using opposite General Electric and Otis Worldwide positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric position performs unexpectedly, Otis Worldwide 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 Otis Worldwide will offset losses from the drop in Otis Worldwide's long position.| General Electric vs. Mliuz SA | General Electric vs. Neogrid Participaes SA | General Electric vs. Pet Center Comrcio | General Electric vs. Locaweb Servios de |
| Otis Worldwide vs. Mliuz SA | Otis Worldwide vs. Neogrid Participaes SA | Otis Worldwide vs. Pet Center Comrcio | Otis Worldwide vs. Locaweb Servios de |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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