Correlation Between Hexcel and L3Harris Technologies

Can any of the company-specific risk be diversified away by investing in both Hexcel and L3Harris Technologies 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 Hexcel and L3Harris Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hexcel and L3Harris Technologies, you can compare the effects of market volatilities on Hexcel and L3Harris Technologies 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 Hexcel with a short position of L3Harris Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hexcel and L3Harris Technologies.

Diversification Opportunities for Hexcel and L3Harris Technologies

0.59

Correlation Coefficient

Hexcel  L3Harris Technologies

Very weak diversification

The 3 months correlation between Hexcel and L3Harris is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and L3Harris Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L3Harris Technologies and Hexcel 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 Hexcel are associated (or correlated) with L3Harris Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L3Harris Technologies has no effect on the direction of Hexcel i.e., Hexcel and L3Harris Technologies go up and down completely randomly.

Pair Corralation between Hexcel and L3Harris Technologies

Considering the 90-day investment horizon Hexcel is expected to under-perform the L3Harris Technologies. In addition to that, Hexcel is 2.2 times more volatile than L3Harris Technologies. It trades about -0.03 of its total potential returns per unit of risk. L3Harris Technologies is currently generating about 0.02 per unit of volatility. If you would invest  21,461  in L3Harris Technologies on February 8, 2024 and sell it today you would earn a total of  130.00  from holding L3Harris Technologies or generate 0.61% return on investment over 90 days.

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

Hexcel  vs.  L3Harris Technologies

Hexcel

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Hexcel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hexcel is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

L3Harris Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in L3Harris Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, L3Harris Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hexcel and L3Harris Technologies

The main advantage of trading using opposite Hexcel and L3Harris Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hexcel position performs unexpectedly, L3Harris Technologies 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 L3Harris Technologies will offset losses from the drop in L3Harris Technologies' long position.

The idea behind Hexcel and L3Harris Technologies 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..