Correlation Between General Dynamics and QinetiQ Group

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

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

Diversification Opportunities for General Dynamics and QinetiQ Group

0.26

Correlation Coefficient

General Dynamics  QinetiQ Group

Modest diversification

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

Pair Corralation between General Dynamics and QinetiQ Group

Allowing for the 90-day total investment horizon General Dynamics is expected to generate 6.66 times less return on investment than QinetiQ Group. But when comparing it to its historical volatility, General Dynamics is 3.82 times less risky than QinetiQ Group. It trades about 0.04 of its potential returns per unit of risk. QinetiQ Group plc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  477.00  in QinetiQ Group plc on December 29, 2024 and sell it today you would earn a total of  68.00  from holding QinetiQ Group plc or generate 14.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.72%
Values	Daily Returns

General Dynamics  vs.  QinetiQ Group plc

General Dynamics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 3 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

QinetiQ Group plc

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in QinetiQ Group plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, QinetiQ Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Dynamics and QinetiQ Group

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

The idea behind General Dynamics and QinetiQ Group plc 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.