Correlation Between Raytheon Technologies and Agilent Technologies

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Can any of the company-specific risk be diversified away by investing in both Raytheon Technologies and Agilent 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 Raytheon Technologies and Agilent Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Raytheon Technologies and Agilent Technologies, you can compare the effects of market volatilities on Raytheon Technologies and Agilent 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 Raytheon Technologies with a short position of Agilent Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Raytheon Technologies and Agilent Technologies.

Diversification Opportunities for Raytheon Technologies and Agilent Technologies

0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between Raytheon and Agilent is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies and Agilent Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agilent Technologies and Raytheon Technologies 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 Raytheon Technologies are associated (or correlated) with Agilent Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agilent Technologies has no effect on the direction of Raytheon Technologies i.e., Raytheon Technologies and Agilent Technologies go up and down completely randomly.

Pair Corralation between Raytheon Technologies and Agilent Technologies

Assuming the 90 days trading horizon Raytheon Technologies is expected to under-perform the Agilent Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Raytheon Technologies is 1.19 times less risky than Agilent Technologies. The stock trades about -0.06 of its potential returns per unit of risk. The Agilent Technologies is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  41,360  in Agilent Technologies on August 24, 2024 and sell it today you would lose (1,073) from holding Agilent Technologies or give up 2.59% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.24%
ValuesDaily Returns

Raytheon Technologies  vs.  Agilent Technologies

 Performance 
       Timeline  
Raytheon Technologies 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Raytheon Technologies may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Agilent Technologies 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Agilent Technologies are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Agilent Technologies may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Raytheon Technologies and Agilent Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Raytheon Technologies and Agilent Technologies

The main advantage of trading using opposite Raytheon Technologies and Agilent Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Raytheon Technologies position performs unexpectedly, Agilent 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 Agilent Technologies will offset losses from the drop in Agilent Technologies' long position.
The idea behind Raytheon Technologies and Agilent Technologies 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.
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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