Correlation Between GE Aerospace and ZOETIS

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

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

Diversification Opportunities for GE Aerospace and ZOETIS

0.37

Correlation Coefficient

GE Aerospace  ZOETIS

Weak diversification

The 3 months correlation between GE Aerospace and ZOETIS is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and ZOETIS INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZOETIS INC 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 ZOETIS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZOETIS INC has no effect on the direction of GE Aerospace i.e., GE Aerospace and ZOETIS go up and down completely randomly.

Pair Corralation between GE Aerospace and ZOETIS

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 5.89 times more return on investment than ZOETIS. However, GE Aerospace is 5.89 times more volatile than ZOETIS INC. It trades about 0.1 of its potential returns per unit of risk. ZOETIS INC is currently generating about 0.02 per unit of risk. If you would invest  18,186  in GE Aerospace on November 29, 2024 and sell it today you would earn a total of  1,975  from holding GE Aerospace or generate 10.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

GE Aerospace  vs.  ZOETIS INC

GE Aerospace

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 8 (%) 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 March 2025.

ZOETIS INC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ZOETIS INC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ZOETIS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GE Aerospace and ZOETIS

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

The idea behind GE Aerospace and ZOETIS INC 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.