Correlation Between GE Aerospace and NET Power

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

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

Diversification Opportunities for GE Aerospace and NET Power

-0.17

Correlation Coefficient

GE Aerospace  NET Power

Good diversification

The 3 months correlation between GE Aerospace and NET is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and NET Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NET Power 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 NET Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NET Power has no effect on the direction of GE Aerospace i.e., GE Aerospace and NET Power go up and down completely randomly.

Pair Corralation between GE Aerospace and NET Power

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 0.47 times more return on investment than NET Power. However, GE Aerospace is 2.15 times less risky than NET Power. It trades about 0.13 of its potential returns per unit of risk. NET Power is currently generating about 0.02 per unit of risk. If you would invest  6,507  in GE Aerospace on October 23, 2024 and sell it today you would earn a total of  12,149  from holding GE Aerospace or generate 186.71% return on investment over 90 days.

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

GE Aerospace  vs.  NET Power

GE Aerospace

Risk-Adjusted Performance

1 of 100

Weak

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

NET Power

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NET Power are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, NET Power may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with GE Aerospace and NET Power

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

The idea behind GE Aerospace and NET Power 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.