Correlation Between General Dynamics and New Horizon

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

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

Diversification Opportunities for General Dynamics and New Horizon

0.26

Correlation Coefficient

General Dynamics  New Horizon

Modest diversification

The 3 months correlation between General and New is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and New Horizon Aircraft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Horizon Aircraft 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 New Horizon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Horizon Aircraft has no effect on the direction of General Dynamics i.e., General Dynamics and New Horizon go up and down completely randomly.

Pair Corralation between General Dynamics and New Horizon

Allowing for the 90-day total investment horizon General Dynamics is expected to generate 30.89 times less return on investment than New Horizon. But when comparing it to its historical volatility, General Dynamics is 12.82 times less risky than New Horizon. It trades about 0.03 of its potential returns per unit of risk. New Horizon Aircraft is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4.50  in New Horizon Aircraft on December 18, 2024 and sell it today you would lose (0.90) from holding New Horizon Aircraft or give up 20.0% of portfolio value over 90 days.

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

General Dynamics  vs.  New Horizon Aircraft

General Dynamics

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 2 (%) 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.

New Horizon Aircraft

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Horizon Aircraft are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, New Horizon showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Dynamics and New Horizon

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

The idea behind General Dynamics and New Horizon Aircraft 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.

Check out your portfolio center.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.