Correlation Between AAR Corp and General Dynamics

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

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

Diversification Opportunities for AAR Corp and General Dynamics

0.04

Correlation Coefficient

AAR Corp  General Dynamics

Significant diversification

The 3 months correlation between AAR and General is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding AAR Corp and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and AAR Corp 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 AAR Corp are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of AAR Corp i.e., AAR Corp and General Dynamics go up and down completely randomly.

Pair Corralation between AAR Corp and General Dynamics

Considering the 90-day investment horizon AAR Corp is expected to generate 1.07 times less return on investment than General Dynamics. In addition to that, AAR Corp is 1.62 times more volatile than General Dynamics. It trades about 0.06 of its total potential returns per unit of risk. General Dynamics is currently generating about 0.11 per unit of volatility. If you would invest  21,330  in General Dynamics on January 26, 2024 and sell it today you would earn a total of  6,781  from holding General Dynamics or generate 31.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

AAR Corp  vs.  General Dynamics

AAR Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AAR Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward indicators, AAR Corp reported solid returns over the last few months and may actually be approaching a breakup point.

General Dynamics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, General Dynamics may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with AAR Corp and General Dynamics

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

The idea behind AAR Corp and General Dynamics 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.