Correlation Between GE Aerospace and Chevron Corp

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

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

Diversification Opportunities for GE Aerospace and Chevron Corp

0.86

Correlation Coefficient

GE Aerospace  Chevron Corp

Very poor diversification

The 3 months correlation between GE Aerospace and Chevron is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding GE Aerospace and Chevron Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chevron Corp 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 Chevron Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chevron Corp has no effect on the direction of GE Aerospace i.e., GE Aerospace and Chevron Corp go up and down completely randomly.

Pair Corralation between GE Aerospace and Chevron Corp

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 1.21 times more return on investment than Chevron Corp. However, GE Aerospace is 1.21 times more volatile than Chevron Corp. It trades about 0.18 of its potential returns per unit of risk. Chevron Corp is currently generating about 0.03 per unit of risk. If you would invest  8,506  in GE Aerospace on January 24, 2024 and sell it today you would earn a total of  6,513  from holding GE Aerospace or generate 76.57% return on investment over 90 days.

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

GE Aerospace  vs.  Chevron Corp

GE Aerospace

Risk-Adjusted Performance

26 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent technical and fundamental indicators, GE Aerospace exhibited solid returns over the last few months and may actually be approaching a breakup point.

Chevron Corp

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Chevron Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Chevron Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GE Aerospace and Chevron Corp

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

The idea behind GE Aerospace and Chevron Corp 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.

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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.