Correlation Between Howmet Aerospace and General Electric

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

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

Diversification Opportunities for Howmet Aerospace and General Electric

0.23

Correlation Coefficient

Howmet Aerospace  General Electric

Modest diversification

The 3 months correlation between Howmet and General is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Howmet Aerospace and General Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Electric and Howmet Aerospace 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 Howmet Aerospace are associated (or correlated) with General Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Electric has no effect on the direction of Howmet Aerospace i.e., Howmet Aerospace and General Electric go up and down completely randomly.

Pair Corralation between Howmet Aerospace and General Electric

Assuming the 90 days trading horizon Howmet Aerospace is expected to generate 0.91 times more return on investment than General Electric. However, Howmet Aerospace is 1.09 times less risky than General Electric. It trades about 0.12 of its potential returns per unit of risk. General Electric is currently generating about 0.08 per unit of risk. If you would invest  19,656  in Howmet Aerospace on October 13, 2024 and sell it today you would earn a total of  50,656  from holding Howmet Aerospace or generate 257.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.39%
Values	Daily Returns

Howmet Aerospace  vs.  General Electric

Howmet Aerospace

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Howmet Aerospace are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Howmet Aerospace sustained solid returns over the last few months and may actually be approaching a breakup point.

General Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, General Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Howmet Aerospace and General Electric

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

The idea behind Howmet Aerospace and General Electric 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.