Correlation Between General Electric and Altair Engineering

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

Diversification Opportunities for General Electric and Altair Engineering

0.59
  Correlation Coefficient

Very weak diversification

The 3 months correlation between General and Altair is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Altair Engineering Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altair Engineering 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 Altair Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altair Engineering has no effect on the direction of General Electric i.e., General Electric and Altair Engineering go up and down completely randomly.

Pair Corralation between General Electric and Altair Engineering

Allowing for the 90-day total investment horizon General Electric is expected to generate 0.73 times more return on investment than Altair Engineering. However, General Electric is 1.36 times less risky than Altair Engineering. It trades about 0.37 of its potential returns per unit of risk. Altair Engineering is currently generating about 0.03 per unit of risk. If you would invest  6,789  in General Electric on May 21, 2022 and sell it today you would earn a total of  983.00  from holding General Electric or generate 14.48% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  Altair Engineering Inc

 Performance (%) 
       Timeline  
General Electric 
General Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, General Electric is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

General Price Channel

Altair Engineering 
Altair Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Altair Engineering are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Altair Engineering may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Altair Price Channel

General Electric and Altair Engineering Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Altair Engineering

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

General Electric

Pair trading matchups for General Electric

The idea behind General Electric and Altair Engineering 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.

Altair Engineering

Pair trading matchups for Altair Engineering

The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Altair Engineering as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Altair Engineering's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Altair Engineering's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Altair Engineering.
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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