Correlation Between General Electric and Hillenbrand

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Can any of the company-specific risk be diversified away by investing in both General Electric and Hillenbrand 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 Electric and Hillenbrand into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Electric and Hillenbrand, you can compare the effects of market volatilities on General Electric and Hillenbrand 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 Electric with a short position of Hillenbrand. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Electric and Hillenbrand.

Diversification Opportunities for General Electric and Hillenbrand

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between General and Hillenbrand is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Hillenbrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hillenbrand and General Electric 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 Electric are associated (or correlated) with Hillenbrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hillenbrand has no effect on the direction of General Electric i.e., General Electric and Hillenbrand go up and down completely randomly.

Pair Corralation between General Electric and Hillenbrand

Allowing for the 90-day total investment horizon General Electric is expected to generate 0.87 times more return on investment than Hillenbrand. However, General Electric is 1.15 times less risky than Hillenbrand. It trades about 0.11 of its potential returns per unit of risk. Hillenbrand is currently generating about 0.03 per unit of risk. If you would invest  6,953  in General Electric on December 30, 2023 and sell it today you would earn a total of  10,600  from holding General Electric or generate 152.45% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  Hillenbrand

 Performance 
       Timeline  
General Electric 

Risk-Adjusted Performance

33 of 100

 
Low
 
High
Very Strong
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 33 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, General Electric exhibited solid returns over the last few months and may actually be approaching a breakup point.
Hillenbrand 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Hillenbrand are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Hillenbrand may actually be approaching a critical reversion point that can send shares even higher in April 2024.

General Electric and Hillenbrand Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Hillenbrand

The main advantage of trading using opposite General Electric and Hillenbrand positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric position performs unexpectedly, Hillenbrand 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 Hillenbrand will offset losses from the drop in Hillenbrand's long position.
The idea behind General Electric and Hillenbrand 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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