Correlation Between L3Harris Technologies and Transdigm Group

Can any of the company-specific risk be diversified away by investing in both L3Harris Technologies 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 L3Harris Technologies and Transdigm Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between L3Harris Technologies and Transdigm Group Incorporated, you can compare the effects of market volatilities on L3Harris Technologies 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 L3Harris Technologies with a short position of Transdigm Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of L3Harris Technologies and Transdigm Group.

Diversification Opportunities for L3Harris Technologies and Transdigm Group

0.24

Correlation Coefficient

L3Harris Technologies  Transdigm Group

Modest diversification

The 3 months correlation between L3Harris and Transdigm is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding L3Harris Technologies and Transdigm Group Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transdigm Group and L3Harris Technologies 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 L3Harris Technologies 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 L3Harris Technologies i.e., L3Harris Technologies and Transdigm Group go up and down completely randomly.

Pair Corralation between L3Harris Technologies and Transdigm Group

Considering the 90-day investment horizon L3Harris Technologies is expected to generate 14.15 times less return on investment than Transdigm Group. But when comparing it to its historical volatility, L3Harris Technologies is 1.03 times less risky than Transdigm Group. It trades about 0.01 of its potential returns per unit of risk. Transdigm Group Incorporated is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  127,991  in Transdigm Group Incorporated on December 29, 2024 and sell it today you would earn a total of  9,729  from holding Transdigm Group Incorporated or generate 7.6% return on investment over 90 days.

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

L3Harris Technologies  vs.  Transdigm Group Incorporated

L3Harris Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days L3Harris Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, L3Harris Technologies 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

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Transdigm Group Incorporated are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Transdigm Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with L3Harris Technologies and Transdigm Group

The main advantage of trading using opposite L3Harris Technologies and Transdigm Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if L3Harris Technologies 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 L3Harris Technologies 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 Global Correlations module to find global opportunities by holding instruments from different markets.