Correlation Between Amaero International and GE Aerospace

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

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

Diversification Opportunities for Amaero International and GE Aerospace

0.47

Correlation Coefficient

Amaero International  GE Aerospace

Very weak diversification

The 3 months correlation between Amaero and GE Aerospace is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Amaero International and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace and Amaero International 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 Amaero International 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 Amaero International i.e., Amaero International and GE Aerospace go up and down completely randomly.

Pair Corralation between Amaero International and GE Aerospace

Assuming the 90 days horizon Amaero International is expected to under-perform the GE Aerospace. In addition to that, Amaero International is 1.68 times more volatile than GE Aerospace. It trades about -0.16 of its total potential returns per unit of risk. GE Aerospace is currently generating about -0.06 per unit of volatility. If you would invest  18,117  in GE Aerospace on September 14, 2024 and sell it today you would lose (1,518) from holding GE Aerospace or give up 8.38% of portfolio value over 90 days.

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

Amaero International  vs.  GE Aerospace

Amaero International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Amaero International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

GE Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GE Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's technical and 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 Amaero International and GE Aerospace

The main advantage of trading using opposite Amaero International and GE Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amaero International 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 Amaero International 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.