Correlation Between Raytheon Technologies and AeroVironment

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

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

Diversification Opportunities for Raytheon Technologies and AeroVironment

0.69

Correlation Coefficient

Raytheon Technologies  AeroVironment

Poor diversification

The 3 months correlation between Raytheon and AeroVironment is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies Corp and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment and Raytheon Technologies 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 Raytheon Technologies Corp are associated (or correlated) with AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Raytheon Technologies i.e., Raytheon Technologies and AeroVironment go up and down completely randomly.

Pair Corralation between Raytheon Technologies and AeroVironment

Considering the 90-day investment horizon Raytheon Technologies Corp is expected to generate 0.34 times more return on investment than AeroVironment. However, Raytheon Technologies Corp is 2.98 times less risky than AeroVironment. It trades about 0.0 of its potential returns per unit of risk. AeroVironment is currently generating about -0.03 per unit of risk. If you would invest  11,857  in Raytheon Technologies Corp on September 14, 2024 and sell it today you would lose (77.00) from holding Raytheon Technologies Corp or give up 0.65% of portfolio value over 90 days.

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

Raytheon Technologies Corp  vs.  AeroVironment

Raytheon Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

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

AeroVironment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AeroVironment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Raytheon Technologies and AeroVironment

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

The idea behind Raytheon Technologies Corp and AeroVironment 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.