Correlation Between Airbus Group and Transdigm Group

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

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

Diversification Opportunities for Airbus Group and Transdigm Group

0.59

Correlation Coefficient

Airbus Group  Transdigm Group

Very weak diversification

The 3 months correlation between Airbus and Transdigm is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Airbus Group SE and Transdigm Group Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transdigm Group and Airbus Group 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 Airbus Group SE 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 Airbus Group i.e., Airbus Group and Transdigm Group go up and down completely randomly.

Pair Corralation between Airbus Group and Transdigm Group

Assuming the 90 days horizon Airbus Group is expected to generate 2.07 times less return on investment than Transdigm Group. In addition to that, Airbus Group is 1.37 times more volatile than Transdigm Group Incorporated. It trades about 0.06 of its total potential returns per unit of risk. Transdigm Group Incorporated is currently generating about 0.18 per unit of volatility. If you would invest  84,231  in Transdigm Group Incorporated on February 7, 2024 and sell it today you would earn a total of  45,149  from holding Transdigm Group Incorporated or generate 53.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.93%
Values	Daily Returns

Airbus Group SE  vs.  Transdigm Group Incorporated

Airbus Group SE

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Airbus Group SE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Airbus Group may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Transdigm Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transdigm Group Incorporated are ranked lower than 13 (%) 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 Airbus Group and Transdigm Group

The main advantage of trading using opposite Airbus Group and Transdigm Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Airbus Group 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 Airbus Group SE 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..