Correlation Between General Electric and TITAN MACHINERY

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

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

Diversification Opportunities for General Electric and TITAN MACHINERY

0.81

Correlation Coefficient

General Electric  TITAN MACHINERY

Very poor diversification

The 3 months correlation between General and TITAN is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and TITAN MACHINERY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TITAN MACHINERY and General Electric 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 General Electric are associated (or correlated) with TITAN MACHINERY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TITAN MACHINERY has no effect on the direction of General Electric i.e., General Electric and TITAN MACHINERY go up and down completely randomly.

Pair Corralation between General Electric and TITAN MACHINERY

Assuming the 90 days trading horizon General Electric is expected to generate 0.58 times more return on investment than TITAN MACHINERY. However, General Electric is 1.72 times less risky than TITAN MACHINERY. It trades about 0.14 of its potential returns per unit of risk. TITAN MACHINERY is currently generating about 0.05 per unit of risk. If you would invest  16,044  in General Electric on December 21, 2024 and sell it today you would earn a total of  2,856  from holding General Electric or generate 17.8% return on investment over 90 days.

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

General Electric  vs.  TITAN MACHINERY

General Electric

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, General Electric displayed solid returns over the last few months and may actually be approaching a breakup point.

TITAN MACHINERY

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TITAN MACHINERY are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, TITAN MACHINERY may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with General Electric and TITAN MACHINERY

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

The idea behind General Electric and TITAN MACHINERY 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.