Correlation Between Vertical Aerospace and Kratos Defense

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

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

Diversification Opportunities for Vertical Aerospace and Kratos Defense

-0.27

Correlation Coefficient

Vertical Aerospace  Kratos Defense

Very good diversification

The 3 months correlation between Vertical and Kratos is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Vertical Aerospace and Kratos Defense Security in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kratos Defense Security and Vertical Aerospace 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 Vertical Aerospace are associated (or correlated) with Kratos Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kratos Defense Security has no effect on the direction of Vertical Aerospace i.e., Vertical Aerospace and Kratos Defense go up and down completely randomly.

Pair Corralation between Vertical Aerospace and Kratos Defense

Given the investment horizon of 90 days Vertical Aerospace is expected to generate 3.77 times more return on investment than Kratos Defense. However, Vertical Aerospace is 3.77 times more volatile than Kratos Defense Security. It trades about 0.08 of its potential returns per unit of risk. Kratos Defense Security is currently generating about 0.14 per unit of risk. If you would invest  819.00  in Vertical Aerospace on September 2, 2024 and sell it today you would earn a total of  191.00  from holding Vertical Aerospace or generate 23.32% return on investment over 90 days.

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

Vertical Aerospace  vs.  Kratos Defense Security

Vertical Aerospace

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vertical Aerospace are ranked lower than 6 (%) 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.

Kratos Defense Security

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kratos Defense Security are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Kratos Defense unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vertical Aerospace and Kratos Defense

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

The idea behind Vertical Aerospace and Kratos Defense Security 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.