Correlation Between NuStar Energy and General Dynamics

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

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

Diversification Opportunities for NuStar Energy and General Dynamics

0.27

Correlation Coefficient

NuStar Energy  General Dynamics

Modest diversification

The 3 months correlation between NuStar and General is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding NuStar Energy LP and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and NuStar Energy 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 NuStar Energy LP 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 NuStar Energy i.e., NuStar Energy and General Dynamics go up and down completely randomly.

Pair Corralation between NuStar Energy and General Dynamics

Allowing for the 90-day total investment horizon NuStar Energy LP is expected to under-perform the General Dynamics. In addition to that, NuStar Energy is 1.44 times more volatile than General Dynamics. It trades about -0.08 of its total potential returns per unit of risk. General Dynamics is currently generating about 0.04 per unit of volatility. If you would invest  27,761  in General Dynamics on January 25, 2024 and sell it today you would earn a total of  246.00  from holding General Dynamics or generate 0.89% return on investment over 90 days.

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

NuStar Energy LP  vs.  General Dynamics

NuStar Energy LP

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NuStar Energy LP are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, NuStar Energy may actually be approaching a critical reversion point that can send shares even higher in May 2024.

General Dynamics

Risk-Adjusted Performance

8 of 100

Solid

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.

Pair Trading with NuStar Energy and General Dynamics

The main advantage of trading using opposite NuStar Energy and General Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NuStar Energy 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 NuStar Energy LP 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.