Correlation Between Austal and CPI Aerostructures

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

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

Diversification Opportunities for Austal and CPI Aerostructures

0.58

Correlation Coefficient

Austal  CPI Aerostructures

Very weak diversification

The 3 months correlation between Austal and CPI is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Austal Limited and CPI Aerostructures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPI Aerostructures and Austal 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 Austal Limited are associated (or correlated) with CPI Aerostructures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPI Aerostructures has no effect on the direction of Austal i.e., Austal and CPI Aerostructures go up and down completely randomly.

Pair Corralation between Austal and CPI Aerostructures

Assuming the 90 days horizon Austal Limited is expected to under-perform the CPI Aerostructures. In addition to that, Austal is 1.26 times more volatile than CPI Aerostructures. It trades about -0.03 of its total potential returns per unit of risk. CPI Aerostructures is currently generating about 0.13 per unit of volatility. If you would invest  337.00  in CPI Aerostructures on September 4, 2024 and sell it today you would earn a total of  40.00  from holding CPI Aerostructures or generate 11.87% return on investment over 90 days.

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

Austal Limited  vs.  CPI Aerostructures

Austal Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Austal Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Austal reported solid returns over the last few months and may actually be approaching a breakup point.

CPI Aerostructures

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CPI Aerostructures are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, CPI Aerostructures unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Austal and CPI Aerostructures

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

The idea behind Austal Limited and CPI Aerostructures 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.