Correlation Between GE Aerospace and Crane
Can any of the company-specific risk be diversified away by investing in both GE Aerospace and Crane 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 GE Aerospace and Crane into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GE Aerospace and Crane Company, you can compare the effects of market volatilities on GE Aerospace and Crane 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 GE Aerospace with a short position of Crane. Check out your portfolio center. Please also check ongoing floating volatility patterns of GE Aerospace and Crane.
Diversification Opportunities for GE Aerospace and Crane
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GE Aerospace and Crane is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and Crane Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Crane Company and GE Aerospace 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 GE Aerospace are associated (or correlated) with Crane. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Crane Company has no effect on the direction of GE Aerospace i.e., GE Aerospace and Crane go up and down completely randomly.
Pair Corralation between GE Aerospace and Crane
Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 1.02 times less return on investment than Crane. But when comparing it to its historical volatility, GE Aerospace is 1.21 times less risky than Crane. It trades about 0.18 of its potential returns per unit of risk. Crane Company is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 7,193 in Crane Company on January 26, 2024 and sell it today you would earn a total of 7,020 from holding Crane Company or generate 97.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
GE Aerospace vs. Crane Company
Performance |
| Timeline |
| GE Aerospace |
| Crane Company |
GE Aerospace and Crane Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GE Aerospace and Crane
The main advantage of trading using opposite GE Aerospace and Crane positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GE Aerospace position performs unexpectedly, Crane 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 Crane will offset losses from the drop in Crane's long position.The idea behind GE Aerospace and Crane Company 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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