Correlation Between Smith Wesson and VSE

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

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

Diversification Opportunities for Smith Wesson and VSE

0.34

Correlation Coefficient

Smith Wesson  VSE

Weak diversification

The 3 months correlation between Smith and VSE is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Smith Wesson Brands and VSE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VSE Corporation and Smith Wesson 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 Smith Wesson Brands are associated (or correlated) with VSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VSE Corporation has no effect on the direction of Smith Wesson i.e., Smith Wesson and VSE go up and down completely randomly.

Pair Corralation between Smith Wesson and VSE

Given the investment horizon of 90 days Smith Wesson is expected to generate 3.26 times less return on investment than VSE. In addition to that, Smith Wesson is 1.11 times more volatile than VSE Corporation. It trades about 0.03 of its total potential returns per unit of risk. VSE Corporation is currently generating about 0.12 per unit of volatility. If you would invest  6,088  in VSE Corporation on September 5, 2024 and sell it today you would earn a total of  5,405  from holding VSE Corporation or generate 88.78% return on investment over 90 days.

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

Smith Wesson Brands  vs.  VSE Corp.

Smith Wesson Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Wesson Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Smith Wesson is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

VSE Corporation

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VSE Corporation are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, VSE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smith Wesson and VSE

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

The idea behind Smith Wesson Brands and VSE Corporation 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.