Correlation Between General Electric and Western Asset
Can any of the company-specific risk be diversified away by investing in both General Electric and Western Asset 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 Electric and Western Asset into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Electric and Western Asset High, you can compare the effects of market volatilities on General Electric and Western Asset 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 Electric with a short position of Western Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Electric and Western Asset.
Diversification Opportunities for General Electric and Western Asset
0.82 | Correlation Coefficient |
Very poor diversification
The 13 months correlation between General and Western is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Western Asset High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset High and General Electric 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 Electric are associated (or correlated) with Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset High has no effect on the direction of General Electric i.e., General Electric and Western Asset go up and down completely randomly.
Pair Corralation between General Electric and Western Asset
Allowing for the 90-day total investment horizon General Electric is expected to generate 2.15 times more return on investment than Western Asset. However, General Electric is 2.15 times more volatile than Western Asset High. It trades about 0.23 of its potential returns per unit of risk. Western Asset High is currently generating about 0.04 per unit of risk. If you would invest 6,611 in General Electric on December 29, 2023 and sell it today you would earn a total of 11,401 from holding General Electric or generate 172.45% return on investment over 90 days.
Time Period | 13 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 99.68% |
Values | Daily Returns |
General Electric vs. Western Asset High
Performance |
Timeline |
General Electric |
Western Asset High |
General Electric and Western Asset Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with General Electric and Western Asset
The main advantage of trading using opposite General Electric and Western Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric position performs unexpectedly, Western Asset 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 Western Asset will offset losses from the drop in Western Asset's long position.General Electric vs. Barnes Group | General Electric vs. Babcock Wilcox Enterprises | General Electric vs. Crane Company | General Electric vs. Hillenbrand |
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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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