Correlation Between Trade Desk and Raytheon Technologies

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

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

Diversification Opportunities for Trade Desk and Raytheon Technologies

0.72

Correlation Coefficient

Trade Desk  Raytheon Technologies

Poor diversification

The 3 months correlation between Trade and Raytheon is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding The Trade Desk and Raytheon Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raytheon Technologies and Trade Desk 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 The Trade Desk are associated (or correlated) with Raytheon Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raytheon Technologies has no effect on the direction of Trade Desk i.e., Trade Desk and Raytheon Technologies go up and down completely randomly.

Pair Corralation between Trade Desk and Raytheon Technologies

Assuming the 90 days trading horizon The Trade Desk is expected to generate 1.6 times more return on investment than Raytheon Technologies. However, Trade Desk is 1.6 times more volatile than Raytheon Technologies. It trades about 0.11 of its potential returns per unit of risk. Raytheon Technologies is currently generating about 0.02 per unit of risk. If you would invest  683.00  in The Trade Desk on September 27, 2024 and sell it today you would earn a total of  72.00  from holding The Trade Desk or generate 10.54% return on investment over 90 days.

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

The Trade Desk  vs.  Raytheon Technologies

Trade Desk

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Trade Desk are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Trade Desk sustained solid returns over the last few months and may actually be approaching a breakup point.

Raytheon Technologies

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Raytheon Technologies may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Trade Desk and Raytheon Technologies

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

The idea behind The Trade Desk and Raytheon Technologies 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.