Correlation Between GENERAL and Kaiser Aluminum

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

By analyzing existing cross correlation between GENERAL ELEC CAP and Kaiser Aluminum, you can compare the effects of market volatilities on GENERAL and Kaiser Aluminum 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 GENERAL with a short position of Kaiser Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of GENERAL and Kaiser Aluminum.

Diversification Opportunities for GENERAL and Kaiser Aluminum

0.32

Correlation Coefficient

GENERAL  Kaiser Aluminum

Weak diversification

The 3 months correlation between GENERAL and Kaiser is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding GENERAL ELEC CAP and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum and GENERAL 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 GENERAL ELEC CAP are associated (or correlated) with Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of GENERAL i.e., GENERAL and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between GENERAL and Kaiser Aluminum

Assuming the 90 days trading horizon GENERAL ELEC CAP is expected to generate 0.68 times more return on investment than Kaiser Aluminum. However, GENERAL ELEC CAP is 1.47 times less risky than Kaiser Aluminum. It trades about -0.37 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about -0.38 per unit of risk. If you would invest  10,116  in GENERAL ELEC CAP on October 11, 2024 and sell it today you would lose (225.00) from holding GENERAL ELEC CAP or give up 2.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	28.57%
Values	Daily Returns

GENERAL ELEC CAP  vs.  Kaiser Aluminum

GENERAL ELEC CAP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GENERAL ELEC CAP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, GENERAL sustained solid returns over the last few months and may actually be approaching a breakup point.

Kaiser Aluminum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kaiser Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Kaiser Aluminum is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GENERAL and Kaiser Aluminum

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

The idea behind GENERAL ELEC CAP and Kaiser Aluminum 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.