Correlation Between Astronics and Vertical Aerospace

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

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

Diversification Opportunities for Astronics and Vertical Aerospace

0.2

Correlation Coefficient

Astronics  Vertical Aerospace

Modest diversification

The 3 months correlation between Astronics and Vertical is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Astronics and Vertical Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertical Aerospace and Astronics 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 Astronics are associated (or correlated) with Vertical Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertical Aerospace has no effect on the direction of Astronics i.e., Astronics and Vertical Aerospace go up and down completely randomly.

Pair Corralation between Astronics and Vertical Aerospace

Given the investment horizon of 90 days Astronics is expected to under-perform the Vertical Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, Astronics is 2.39 times less risky than Vertical Aerospace. The stock trades about -0.02 of its potential returns per unit of risk. The Vertical Aerospace is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  710.00  in Vertical Aerospace on September 5, 2024 and sell it today you would earn a total of  43.00  from holding Vertical Aerospace or generate 6.06% return on investment over 90 days.

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

Astronics  vs.  Vertical Aerospace

Astronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Astronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Vertical Aerospace

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vertical Aerospace are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Vertical Aerospace disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Astronics and Vertical Aerospace

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

The idea behind Astronics and Vertical Aerospace 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.

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 the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.