Correlation Between GE Aerospace and Subaru Corp

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

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

Diversification Opportunities for GE Aerospace and Subaru Corp

0.59

Correlation Coefficient

GE Aerospace  Subaru Corp

Very weak diversification

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

Pair Corralation between GE Aerospace and Subaru Corp

Allowing for the 90-day total investment horizon GE Aerospace is expected to generate 1.88 times more return on investment than Subaru Corp. However, GE Aerospace is 1.88 times more volatile than Subaru Corp ADR. It trades about 0.28 of its potential returns per unit of risk. Subaru Corp ADR is currently generating about -0.09 per unit of risk. If you would invest  13,961  in GE Aerospace on January 31, 2024 and sell it today you would earn a total of  2,488  from holding GE Aerospace or generate 17.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

GE Aerospace  vs.  Subaru Corp ADR

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.

Subaru Corp ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Subaru Corp ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical indicators, Subaru Corp may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with GE Aerospace and Subaru Corp

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

The idea behind GE Aerospace and Subaru Corp ADR 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.