Correlation Between Hexcel and Transdigm Group

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

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

Diversification Opportunities for Hexcel and Transdigm Group

0.87

Correlation Coefficient

Hexcel  Transdigm Group

Very poor diversification

The 3 months correlation between Hexcel and Transdigm is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and Transdigm Group Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transdigm Group and Hexcel 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 Hexcel are associated (or correlated) with Transdigm Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transdigm Group has no effect on the direction of Hexcel i.e., Hexcel and Transdigm Group go up and down completely randomly.

Pair Corralation between Hexcel and Transdigm Group

Considering the 90-day investment horizon Hexcel is expected to generate 1.57 times more return on investment than Transdigm Group. However, Hexcel is 1.57 times more volatile than Transdigm Group Incorporated. It trades about 0.19 of its potential returns per unit of risk. Transdigm Group Incorporated is currently generating about 0.23 per unit of risk. If you would invest  5,050  in Hexcel on May 6, 2025 and sell it today you would earn a total of  1,038  from holding Hexcel or generate 20.55% return on investment over 90 days.

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

Hexcel  vs.  Transdigm Group Incorporated

Hexcel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hexcel are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Hexcel disclosed solid returns over the last few months and may actually be approaching a breakup point.

Transdigm Group

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Transdigm Group Incorporated are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Transdigm Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hexcel and Transdigm Group

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

The idea behind Hexcel and Transdigm Group Incorporated 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.