Correlation Between GE Aerospace and Agilent Technologies

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

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

Diversification Opportunities for GE Aerospace and Agilent Technologies

0.77

Correlation Coefficient

GE Aerospace  Agilent Technologies

Poor diversification

The 3 months correlation between GE Aerospace and Agilent is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and Agilent Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agilent Technologies and GE Aerospace 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 GE Aerospace are associated (or correlated) with Agilent Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agilent Technologies has no effect on the direction of GE Aerospace i.e., GE Aerospace and Agilent Technologies go up and down completely randomly.

Pair Corralation between GE Aerospace and Agilent Technologies

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 0.93 times more return on investment than Agilent Technologies. However, GE Aerospace is 1.07 times less risky than Agilent Technologies. It trades about 0.2 of its potential returns per unit of risk. Agilent Technologies is currently generating about 0.03 per unit of risk. If you would invest  8,024  in GE Aerospace on January 19, 2024 and sell it today you would earn a total of  7,270  from holding GE Aerospace or generate 90.6% return on investment over 90 days.

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

GE Aerospace  vs.  Agilent Technologies

GE Aerospace

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, GE Aerospace exhibited solid returns over the last few months and may actually be approaching a breakup point.

Agilent Technologies

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Agilent Technologies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Agilent Technologies is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GE Aerospace and Agilent Technologies

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

The idea behind GE Aerospace and Agilent Technologies 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.