Correlation Between GM and AAR Corp
Can any of the company-specific risk be diversified away by investing in both GM and AAR Corp 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 GM and AAR Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and AAR Corp, you can compare the effects of market volatilities on GM and AAR Corp 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 GM with a short position of AAR Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and AAR Corp.
Diversification Opportunities for GM and AAR Corp
Average diversification
The 3 months correlation between GM and AAR is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp and GM 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 Motors are associated (or correlated) with AAR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAR Corp has no effect on the direction of GM i.e., GM and AAR Corp go up and down completely randomly.
Pair Corralation between GM and AAR Corp
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the AAR Corp. In addition to that, GM is 2.17 times more volatile than AAR Corp. It trades about -0.09 of its total potential returns per unit of risk. AAR Corp is currently generating about 0.06 per unit of volatility. If you would invest 6,709 in AAR Corp on November 9, 2024 and sell it today you would earn a total of 96.00 from holding AAR Corp or generate 1.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. AAR Corp
Performance |
| Timeline |
| General Motors |
| AAR Corp |
GM and AAR Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and AAR Corp
The main advantage of trading using opposite GM and AAR Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, AAR Corp 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 AAR Corp will offset losses from the drop in AAR Corp's long position.The idea behind General Motors and AAR Corp 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.| AAR Corp vs. Curtiss Wright | AAR Corp vs. Hexcel | AAR Corp vs. Moog Inc | AAR Corp vs. Ducommun Incorporated |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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