Correlation Between Planet Labs and General Dynamics

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

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

Diversification Opportunities for Planet Labs and General Dynamics

-0.5

Correlation Coefficient

Planet Labs  General Dynamics

Very good diversification

The 3 months correlation between Planet and General is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Planet Labs PBC and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Planet Labs 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 Planet Labs PBC are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Planet Labs i.e., Planet Labs and General Dynamics go up and down completely randomly.

Pair Corralation between Planet Labs and General Dynamics

Allowing for the 90-day total investment horizon Planet Labs PBC is expected to under-perform the General Dynamics. In addition to that, Planet Labs is 3.72 times more volatile than General Dynamics. It trades about -0.02 of its total potential returns per unit of risk. General Dynamics is currently generating about 0.15 per unit of volatility. If you would invest  24,024  in General Dynamics on January 30, 2024 and sell it today you would earn a total of  4,417  from holding General Dynamics or generate 18.39% return on investment over 90 days.

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

Planet Labs PBC  vs.  General Dynamics

Planet Labs PBC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Planet Labs PBC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

General Dynamics

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Dynamics are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, General Dynamics may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Planet Labs and General Dynamics

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

The idea behind Planet Labs PBC and General Dynamics 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.