Correlation Between General Electric and Axcella Health

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

Diversification Opportunities for General Electric and Axcella Health

0.24
  Correlation Coefficient

Modest diversification

The 3 months correlation between General and Axcella is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Axcella Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axcella Health 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 Axcella Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axcella Health has no effect on the direction of General Electric i.e., General Electric and Axcella Health go up and down completely randomly.

Pair Corralation between General Electric and Axcella Health

Allowing for the 90-day total investment horizon General Electric is expected to generate 1.52 times less return on investment than Axcella Health. But when comparing it to its historical volatility, General Electric is 3.52 times less risky than Axcella Health. It trades about 0.37 of its potential returns per unit of risk. Axcella Health is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  203.00  in Axcella Health on May 21, 2022 and sell it today you would earn a total of  39.00  from holding Axcella Health or generate 19.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  Axcella Health

 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

Axcella Health 
Axcella Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Axcella Health are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat sluggish essential indicators, Axcella Health sustained solid returns over the last few months and may actually be approaching a breakup point.

Axcella Price Channel

General Electric and Axcella Health Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Axcella Health

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

General Electric

Pair trading matchups for General Electric

The idea behind General Electric and Axcella Health 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.

Axcella Health

Pair trading matchups for Axcella Health

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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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