Correlation Between GE Aerospace and Canfor

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

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

Diversification Opportunities for GE Aerospace and Canfor

0.76

Correlation Coefficient

GE Aerospace  Canfor

Poor diversification

The 3 months correlation between GE Aerospace and Canfor is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and Canfor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canfor and GE Aerospace 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 GE Aerospace are associated (or correlated) with Canfor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canfor has no effect on the direction of GE Aerospace i.e., GE Aerospace and Canfor go up and down completely randomly.

Pair Corralation between GE Aerospace and Canfor

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 1.83 times less return on investment than Canfor. But when comparing it to its historical volatility, GE Aerospace is 1.16 times less risky than Canfor. It trades about 0.11 of its potential returns per unit of risk. Canfor is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,206  in Canfor on August 31, 2024 and sell it today you would earn a total of  78.00  from holding Canfor or generate 6.47% return on investment over 90 days.

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

GE Aerospace  vs.  Canfor

GE Aerospace

Risk-Adjusted Performance

7 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, GE Aerospace may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Canfor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canfor are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Canfor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GE Aerospace and Canfor

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

The idea behind GE Aerospace and Canfor 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.