Correlation Between Transdigm Group and L3Harris Technologies

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

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

Diversification Opportunities for Transdigm Group and L3Harris Technologies

0.24

Correlation Coefficient

Transdigm Group  L3Harris Technologies

Modest diversification

The 3 months correlation between Transdigm and L3Harris is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Transdigm Group Incorporated and L3Harris Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L3Harris Technologies and Transdigm Group 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 Transdigm Group Incorporated are associated (or correlated) with L3Harris Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L3Harris Technologies has no effect on the direction of Transdigm Group i.e., Transdigm Group and L3Harris Technologies go up and down completely randomly.

Pair Corralation between Transdigm Group and L3Harris Technologies

Considering the 90-day investment horizon Transdigm Group Incorporated is expected to generate 1.03 times more return on investment than L3Harris Technologies. However, Transdigm Group is 1.03 times more volatile than L3Harris Technologies. It trades about 0.09 of its potential returns per unit of risk. L3Harris Technologies is currently generating about 0.01 per unit of risk. 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

Transdigm Group Incorporated  vs.  L3Harris Technologies

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.

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.

Pair Trading with Transdigm Group and L3Harris Technologies

The main advantage of trading using opposite Transdigm Group and L3Harris Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transdigm Group position performs unexpectedly, L3Harris 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 L3Harris Technologies will offset losses from the drop in L3Harris Technologies' long position.

The idea behind Transdigm Group Incorporated and L3Harris 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.

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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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.