Correlation Between Magellan Aerospace and General Dynamics

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

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

Diversification Opportunities for Magellan Aerospace and General Dynamics

-0.1

Correlation Coefficient

Magellan Aerospace  General Dynamics

Good diversification

The 3 months correlation between Magellan and General is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Magellan Aerospace and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Magellan 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 Magellan Aerospace are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Magellan Aerospace i.e., Magellan Aerospace and General Dynamics go up and down completely randomly.

Pair Corralation between Magellan Aerospace and General Dynamics

Assuming the 90 days horizon Magellan Aerospace is expected to under-perform the General Dynamics. But the pink sheet apears to be less risky and, when comparing its historical volatility, Magellan Aerospace is 1.5 times less risky than General Dynamics. The pink sheet trades about -0.09 of its potential returns per unit of risk. The General Dynamics is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  29,169  in General Dynamics on February 8, 2024 and sell it today you would earn a total of  168.00  from holding General Dynamics or generate 0.58% return on investment over 90 days.

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

Magellan Aerospace  vs.  General Dynamics

Magellan Aerospace

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magellan Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, Magellan Aerospace is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

General Dynamics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 13 (%) 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 June 2024.

Pair Trading with Magellan Aerospace and General Dynamics

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

The idea behind Magellan Aerospace and General Dynamics 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.