Correlation Between GE Aerospace and NGK Insulators

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

By analyzing existing cross correlation between GE Aerospace and NGK Insulators, you can compare the effects of market volatilities on GE Aerospace and NGK Insulators 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 NGK Insulators. Check out your portfolio center. Please also check ongoing floating volatility patterns of GE Aerospace and NGK Insulators.

Diversification Opportunities for GE Aerospace and NGK Insulators

0.9

Correlation Coefficient

GE Aerospace  NGK Insulators

Almost no diversification

The 3 months correlation between GE Aerospace and NGK is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and NGK Insulators in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGK Insulators 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 NGK Insulators. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGK Insulators has no effect on the direction of GE Aerospace i.e., GE Aerospace and NGK Insulators go up and down completely randomly.

Pair Corralation between GE Aerospace and NGK Insulators

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 6.89 times more return on investment than NGK Insulators. However, GE Aerospace is 6.89 times more volatile than NGK Insulators. It trades about 0.24 of its potential returns per unit of risk. NGK Insulators is currently generating about 0.28 per unit of risk. If you would invest  13,961  in GE Aerospace on February 1, 2024 and sell it today you would earn a total of  2,221  from holding GE Aerospace or generate 15.91% return on investment over 90 days.

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

GE Aerospace  vs.  NGK Insulators

GE Aerospace

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, GE Aerospace exhibited solid returns over the last few months and may actually be approaching a breakup point.

NGK Insulators

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NGK Insulators are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, NGK Insulators may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with GE Aerospace and NGK Insulators

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

The idea behind GE Aerospace and NGK Insulators 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.