Correlation Between General Dynamics and Makita Corp

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

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

Diversification Opportunities for General Dynamics and Makita Corp

-0.42

Correlation Coefficient

General Dynamics  Makita Corp

Very good diversification

The 3 months correlation between General and Makita is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding General Dynamics and Makita Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Makita Corp and General Dynamics 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 Dynamics are associated (or correlated) with Makita Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Makita Corp has no effect on the direction of General Dynamics i.e., General Dynamics and Makita Corp go up and down completely randomly.

Pair Corralation between General Dynamics and Makita Corp

If you would invest  2,720  in Makita Corp on September 2, 2024 and sell it today you would earn a total of  0.00  from holding Makita Corp or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	4.76%
Values	Daily Returns

General Dynamics  vs.  Makita Corp

General Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, General Dynamics is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Makita Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Makita Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Makita Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with General Dynamics and Makita Corp

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

The idea behind General Dynamics and Makita Corp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.