Correlation Between AAR Corp and General Dynamics

Can any of the company-specific risk be diversified away by investing in both AAR Corp and General Dynamics 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 AAR Corp and General Dynamics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AAR Corp and General Dynamics, you can compare the effects of market volatilities on AAR Corp and General Dynamics 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 AAR Corp with a short position of General Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of AAR Corp and General Dynamics.

Diversification Opportunities for AAR Corp and General Dynamics

-0.1

Correlation Coefficient

AAR Corp  General Dynamics

Good diversification

The 3 months correlation between AAR and General is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding AAR Corp and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and AAR Corp 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 AAR Corp are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of AAR Corp i.e., AAR Corp and General Dynamics go up and down completely randomly.

Pair Corralation between AAR Corp and General Dynamics

Considering the 90-day investment horizon AAR Corp is expected to under-perform the General Dynamics. In addition to that, AAR Corp is 1.88 times more volatile than General Dynamics. It trades about -0.05 of its total potential returns per unit of risk. General Dynamics is currently generating about -0.03 per unit of volatility. If you would invest  28,302  in General Dynamics on September 30, 2024 and sell it today you would lose (1,688) from holding General Dynamics or give up 5.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

AAR Corp  vs.  General Dynamics

AAR Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AAR Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, AAR Corp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

General Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with AAR Corp and General Dynamics

The main advantage of trading using opposite AAR Corp and General Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AAR Corp position performs unexpectedly, General Dynamics 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 General Dynamics will offset losses from the drop in General Dynamics' long position.

The idea behind AAR Corp and General Dynamics 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.