Correlation Between Powered Brands and GE Aerospace

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

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

Diversification Opportunities for Powered Brands and GE Aerospace

-0.7

Correlation Coefficient

Powered Brands  GE Aerospace

Excellent diversification

The 3 months correlation between Powered and GE Aerospace is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Powered Brands and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace and Powered Brands 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 Powered Brands are associated (or correlated) with GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of Powered Brands i.e., Powered Brands and GE Aerospace go up and down completely randomly.

Pair Corralation between Powered Brands and GE Aerospace

Assuming the 90 days horizon Powered Brands is expected to generate 38.36 times more return on investment than GE Aerospace. However, Powered Brands is 38.36 times more volatile than GE Aerospace. It trades about 0.11 of its potential returns per unit of risk. GE Aerospace is currently generating about 0.14 per unit of risk. If you would invest  18.00  in Powered Brands on January 20, 2024 and sell it today you would lose (18.00) from holding Powered Brands or give up 100.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	26.26%
Values	Daily Returns

Powered Brands  vs.  GE Aerospace

Powered Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Powered Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Powered Brands is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

GE Aerospace

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 28 (%) 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.

Pair Trading with Powered Brands and GE Aerospace

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

The idea behind Powered Brands and GE Aerospace 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.