Correlation Between Charter Communications and Howmet Aerospace

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

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

Diversification Opportunities for Charter Communications and Howmet Aerospace

0.63

Correlation Coefficient

Charter Communications  Howmet Aerospace

Poor diversification

The 3 months correlation between Charter and Howmet is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and Howmet Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Howmet Aerospace and Charter Communications 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 Charter Communications are associated (or correlated) with Howmet Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Howmet Aerospace has no effect on the direction of Charter Communications i.e., Charter Communications and Howmet Aerospace go up and down completely randomly.

Pair Corralation between Charter Communications and Howmet Aerospace

Assuming the 90 days trading horizon Charter Communications is expected to under-perform the Howmet Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, Charter Communications is 1.29 times less risky than Howmet Aerospace. The stock trades about -0.11 of its potential returns per unit of risk. The Howmet Aerospace is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  68,273  in Howmet Aerospace on October 24, 2024 and sell it today you would earn a total of  8,062  from holding Howmet Aerospace or generate 11.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Charter Communications  vs.  Howmet Aerospace

Charter Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Charter Communications sustained solid returns over the last few months and may actually be approaching a breakup point.

Howmet Aerospace

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Howmet Aerospace are ranked lower than 20 (%) 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.

Pair Trading with Charter Communications and Howmet Aerospace

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

The idea behind Charter Communications and Howmet 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.