Correlation Between Amada and GE Aerospace

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

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

Diversification Opportunities for Amada and GE Aerospace

0.83

Correlation Coefficient

Amada  GE Aerospace

Very poor diversification

The 3 months correlation between Amada and GE Aerospace is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Amada Co and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace and Amada 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 Amada Co are associated (or correlated) with GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of Amada i.e., Amada and GE Aerospace go up and down completely randomly.

Pair Corralation between Amada and GE Aerospace

Assuming the 90 days horizon Amada is expected to generate 10.48 times less return on investment than GE Aerospace. But when comparing it to its historical volatility, Amada Co is 6.8 times less risky than GE Aerospace. It trades about 0.13 of its potential returns per unit of risk. GE Aerospace is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  16,779  in GE Aerospace on December 29, 2024 and sell it today you would earn a total of  3,809  from holding GE Aerospace or generate 22.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.36%
Values	Daily Returns

Amada Co  vs.  GE Aerospace

Amada

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amada Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Amada is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

GE Aerospace

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, GE Aerospace exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Amada and GE Aerospace

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

The idea behind Amada Co and GE Aerospace 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.