Correlation Between HEICO and Transdigm Group

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

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

Diversification Opportunities for HEICO and Transdigm Group

-0.24

Correlation Coefficient

HEICO  Transdigm Group

Very good diversification

The 3 months correlation between HEICO and Transdigm is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding HEICO and Transdigm Group Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transdigm Group and HEICO 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 HEICO are associated (or correlated) with Transdigm Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transdigm Group has no effect on the direction of HEICO i.e., HEICO and Transdigm Group go up and down completely randomly.

Pair Corralation between HEICO and Transdigm Group

Assuming the 90 days horizon HEICO is expected to generate 0.79 times more return on investment than Transdigm Group. However, HEICO is 1.27 times less risky than Transdigm Group. It trades about 0.0 of its potential returns per unit of risk. Transdigm Group Incorporated is currently generating about -0.03 per unit of risk. If you would invest  20,230  in HEICO on September 13, 2024 and sell it today you would lose (117.00) from holding HEICO or give up 0.58% of portfolio value over 90 days.

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

HEICO  vs.  Transdigm Group Incorporated

HEICO

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days HEICO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, HEICO is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Transdigm Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transdigm Group Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Transdigm Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HEICO and Transdigm Group

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

The idea behind HEICO and Transdigm Group Incorporated 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.