Correlation Between Aerojet Rocketdyne and General Dynamics

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Can any of the company-specific risk be diversified away by investing in both Aerojet Rocketdyne 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 Aerojet Rocketdyne and General Dynamics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aerojet Rocketdyne Holdings and General Dynamics Corp, you can compare the effects of market volatilities on Aerojet Rocketdyne 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 Aerojet Rocketdyne with a short position of General Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aerojet Rocketdyne and General Dynamics.

Diversification Opportunities for Aerojet Rocketdyne and General Dynamics

0.31
  Correlation Coefficient

Weak diversification

The 3 months correlation between Aerojet and General is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Aerojet Rocketdyne Holdings and General Dynamics Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics Corp and Aerojet Rocketdyne 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 Aerojet Rocketdyne Holdings 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 Corp has no effect on the direction of Aerojet Rocketdyne i.e., Aerojet Rocketdyne and General Dynamics go up and down completely randomly.

Pair Corralation between Aerojet Rocketdyne and General Dynamics

Given the investment horizon of 90 days Aerojet Rocketdyne is expected to generate 1.39 times less return on investment than General Dynamics. In addition to that, Aerojet Rocketdyne is 1.88 times more volatile than General Dynamics Corp. It trades about 0.04 of its total potential returns per unit of risk. General Dynamics Corp is currently generating about 0.12 per unit of volatility. If you would invest  21,975  in General Dynamics Corp on May 10, 2022 and sell it today you would earn a total of  604.00  from holding General Dynamics Corp or generate 2.75% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Aerojet Rocketdyne Holdings  vs.  General Dynamics Corp

 Performance (%) 
       Timeline  
Aerojet Rocketdyne 
Aerojet Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Aerojet Rocketdyne Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Aerojet Rocketdyne is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Aerojet Price Channel

General Dynamics Corp 
General Performance
0 of 100
Over the last 90 days General Dynamics Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, General Dynamics is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

General Price Channel

Aerojet Rocketdyne and General Dynamics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Aerojet Rocketdyne and General Dynamics

The main advantage of trading using opposite Aerojet Rocketdyne and General Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aerojet Rocketdyne 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 Aerojet Rocketdyne Holdings and General Dynamics 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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