Correlation Between General Dynamics and Hensoldt

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

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

Diversification Opportunities for General Dynamics and Hensoldt

-0.69

Correlation Coefficient

General Dynamics  Hensoldt

Excellent diversification

The 3 months correlation between General and Hensoldt is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Hensoldt AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hensoldt AG 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 Hensoldt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hensoldt AG has no effect on the direction of General Dynamics i.e., General Dynamics and Hensoldt go up and down completely randomly.

Pair Corralation between General Dynamics and Hensoldt

Allowing for the 90-day total investment horizon General Dynamics is expected to generate 2.81 times less return on investment than Hensoldt. But when comparing it to its historical volatility, General Dynamics is 2.77 times less risky than Hensoldt. It trades about 0.03 of its potential returns per unit of risk. Hensoldt AG is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,709  in Hensoldt AG on October 10, 2024 and sell it today you would earn a total of  991.00  from holding Hensoldt AG or generate 36.58% return on investment over 90 days.

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

General Dynamics  vs.  Hensoldt AG

General Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Hensoldt AG

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hensoldt AG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Hensoldt may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with General Dynamics and Hensoldt

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

The idea behind General Dynamics and Hensoldt AG 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.