Correlation Between ABB and GE Aerospace
Can any of the company-specific risk be diversified away by investing in both ABB and GE Aerospace 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 ABB and GE Aerospace into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ABB Ltd ADR and GE Aerospace, you can compare the effects of market volatilities on ABB and GE Aerospace 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 ABB with a short position of GE Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of ABB and GE Aerospace.
Diversification Opportunities for ABB and GE Aerospace
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between ABB and GE Aerospace is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding ABB Ltd ADR and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace and ABB 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 ABB Ltd ADR are associated (or correlated) with GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of ABB i.e., ABB and GE Aerospace go up and down completely randomly.
Pair Corralation between ABB and GE Aerospace
Considering the 90-day investment horizon ABB is expected to generate 1.98 times less return on investment than GE Aerospace. But when comparing it to its historical volatility, ABB Ltd ADR is 1.06 times less risky than GE Aerospace. It trades about 0.08 of its potential returns per unit of risk. GE Aerospace is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 4,848 in GE Aerospace on January 25, 2024 and sell it today you would earn a total of 11,414 from holding GE Aerospace or generate 235.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 61.34% |
| Values | Daily Returns |
ABB Ltd ADR vs. GE Aerospace
Performance |
| Timeline |
| ABB Ltd ADR |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| GE Aerospace |
ABB and GE Aerospace Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ABB and GE Aerospace
The main advantage of trading using opposite ABB and GE Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ABB position performs unexpectedly, GE Aerospace 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 GE Aerospace will offset losses from the drop in GE Aerospace's long position.The idea behind ABB Ltd ADR and GE Aerospace 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.| GE Aerospace vs. Parker Hannifin | GE Aerospace vs. Emerson Electric | GE Aerospace vs. Smith AO | GE Aerospace vs. Oshidori International Holdings |
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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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