Correlation Between General Electric and SP 500

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Can any of the company-specific risk be diversified away by investing in both General Electric and SP 500 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 SP 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Electric and SP 500 Technology, you can compare the effects of market volatilities on General Electric and SP 500 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 SP 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Electric and SP 500.

Diversification Opportunities for General Electric and SP 500

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between General and SP 500 is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and SP 500 Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP 500 Technology 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 SP 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP 500 Technology has no effect on the direction of General Electric i.e., General Electric and SP 500 go up and down completely randomly.

Pair Corralation between General Electric and SP 500

Allowing for the 90-day total investment horizon General Electric is expected to generate 1.2 times more return on investment than SP 500. However, General Electric is 1.2 times more volatile than SP 500 Technology. It trades about 0.06 of its potential returns per unit of risk. SP 500 Technology is currently generating about -0.03 per unit of risk. If you would invest  6,292  in General Electric on July 7, 2022 and sell it today you would earn a total of  462.00  from holding General Electric or generate 7.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  SP 500 Technology

 Performance (%) 
       Timeline  
General Electric 
General Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting technical and fundamental indicators, General Electric may actually be approaching a critical reversion point that can send shares even higher in November 2022.

General Price Channel

SP 500 Technology 
SP 500 Performance
0 of 100
Over the last 90 days SP 500 Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, SP 500 is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

SP 500 Price Channel

General Electric and SP 500 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and SP 500

The main advantage of trading using opposite General Electric and SP 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric position performs unexpectedly, SP 500 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 SP 500 will offset losses from the drop in SP 500's long position.
General Electric vs. Amazon Inc
The idea behind General Electric and SP 500 Technology 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.
SP 500 vs. Merck Company
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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