Correlation Between General Dynamics and Valmont Industries

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

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

Diversification Opportunities for General Dynamics and Valmont Industries

-0.42

Correlation Coefficient

General Dynamics  Valmont Industries

Very good diversification

The 3 months correlation between General and Valmont is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Valmont Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valmont Industries and General Dynamics 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 General Dynamics are associated (or correlated) with Valmont Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valmont Industries has no effect on the direction of General Dynamics i.e., General Dynamics and Valmont Industries go up and down completely randomly.

Pair Corralation between General Dynamics and Valmont Industries

Allowing for the 90-day total investment horizon General Dynamics is expected to generate 1.0 times more return on investment than Valmont Industries. However, General Dynamics is 1.0 times more volatile than Valmont Industries. It trades about 0.05 of its potential returns per unit of risk. Valmont Industries is currently generating about -0.07 per unit of risk. If you would invest  27,761  in General Dynamics on January 25, 2024 and sell it today you would earn a total of  350.00  from holding General Dynamics or generate 1.26% return on investment over 90 days.

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

General Dynamics  vs.  Valmont Industries

General Dynamics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 8 (%) 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.

Valmont Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valmont Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with General Dynamics and Valmont Industries

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

The idea behind General Dynamics and Valmont Industries 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.