Correlation Between Basic Materials and Raytheon Technologies
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Raytheon Technologies 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 Basic Materials and Raytheon Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Raytheon Technologies, you can compare the effects of market volatilities on Basic Materials and Raytheon Technologies 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 Basic Materials with a short position of Raytheon Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Raytheon Technologies.
Diversification Opportunities for Basic Materials and Raytheon Technologies
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Basic and Raytheon is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Raytheon Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytheon Technologies and Basic Materials 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 Basic Materials are associated (or correlated) with Raytheon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytheon Technologies has no effect on the direction of Basic Materials i.e., Basic Materials and Raytheon Technologies go up and down completely randomly.
Pair Corralation between Basic Materials and Raytheon Technologies
Assuming the 90 days trading horizon Basic Materials is expected to generate 3.73 times less return on investment than Raytheon Technologies. But when comparing it to its historical volatility, Basic Materials is 1.56 times less risky than Raytheon Technologies. It trades about 0.03 of its potential returns per unit of risk. Raytheon Technologies is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 7,715 in Raytheon Technologies on August 27, 2024 and sell it today you would earn a total of 4,009 from holding Raytheon Technologies or generate 51.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.17% |
| Values | Daily Returns |
Basic Materials vs. Raytheon Technologies
Performance |
| Timeline |
Basic Materials and Raytheon Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Raytheon Technologies
Pair trading matchups for Raytheon Technologies
Pair Trading with Basic Materials and Raytheon Technologies
The main advantage of trading using opposite Basic Materials and Raytheon Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Raytheon Technologies 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 Raytheon Technologies will offset losses from the drop in Raytheon Technologies' long position.| Basic Materials vs. Prudential Financial | Basic Materials vs. G2D Investments | Basic Materials vs. Micron Technology | Basic Materials vs. CVS Health |
| Raytheon Technologies vs. Fras le SA | Raytheon Technologies vs. Western Digital | Raytheon Technologies vs. Clave Indices De | Raytheon Technologies vs. BTG Pactual Logstica |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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