Correlation Between General Dynamics and AAR Corp

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

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

Diversification Opportunities for General Dynamics and AAR Corp

0.29

Correlation Coefficient

General Dynamics  AAR Corp

Modest diversification

The 3 months correlation between General and AAR is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp and General Dynamics 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 Dynamics are associated (or correlated) with AAR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAR Corp has no effect on the direction of General Dynamics i.e., General Dynamics and AAR Corp go up and down completely randomly.

Pair Corralation between General Dynamics and AAR Corp

Allowing for the 90-day total investment horizon General Dynamics is expected to generate 9.94 times less return on investment than AAR Corp. But when comparing it to its historical volatility, General Dynamics is 1.25 times less risky than AAR Corp. It trades about 0.02 of its potential returns per unit of risk. AAR Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,105  in AAR Corp on December 26, 2024 and sell it today you would earn a total of  857.00  from holding AAR Corp or generate 14.04% return on investment over 90 days.

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

General Dynamics  vs.  AAR Corp

General Dynamics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, General Dynamics is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

AAR Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AAR Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward indicators, AAR Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Dynamics and AAR Corp

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

The idea behind General Dynamics and AAR Corp 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.