Correlation Between Extra Space and General Dynamics

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

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

Diversification Opportunities for Extra Space and General Dynamics

0.57

Correlation Coefficient

Extra Space  General Dynamics

Very weak diversification

The 3 months correlation between Extra and General is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Extra Space Storage and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Extra Space 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 Extra Space Storage 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 Extra Space i.e., Extra Space and General Dynamics go up and down completely randomly.

Pair Corralation between Extra Space and General Dynamics

Assuming the 90 days trading horizon Extra Space Storage is expected to generate 1.36 times more return on investment than General Dynamics. However, Extra Space is 1.36 times more volatile than General Dynamics. It trades about -0.05 of its potential returns per unit of risk. General Dynamics is currently generating about -0.16 per unit of risk. If you would invest  24,336  in Extra Space Storage on December 4, 2024 and sell it today you would lose (1,830) from holding Extra Space Storage or give up 7.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	89.83%
Values	Daily Returns

Extra Space Storage  vs.  General Dynamics

Extra Space Storage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

General Dynamics

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Extra Space and General Dynamics

The main advantage of trading using opposite Extra Space and General Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extra Space 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 Extra Space Storage 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.