Correlation Between VSE and AAR Corp

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

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

Diversification Opportunities for VSE and AAR Corp

0.15

Correlation Coefficient

VSE  AAR Corp

Average diversification

The 3 months correlation between VSE and AAR is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding VSE Corp. and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp and VSE 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 VSE Corporation are associated (or correlated) with AAR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAR Corp has no effect on the direction of VSE i.e., VSE and AAR Corp go up and down completely randomly.

Pair Corralation between VSE and AAR Corp

Given the investment horizon of 90 days VSE Corporation is expected to generate 1.36 times more return on investment than AAR Corp. However, VSE is 1.36 times more volatile than AAR Corp. It trades about 0.16 of its potential returns per unit of risk. AAR Corp is currently generating about 0.06 per unit of risk. If you would invest  8,758  in VSE Corporation on September 2, 2024 and sell it today you would earn a total of  2,968  from holding VSE Corporation or generate 33.89% return on investment over 90 days.

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

VSE Corp.  vs.  AAR Corp

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.

AAR Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AAR Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward indicators, AAR Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with VSE and AAR Corp

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

The idea behind VSE Corporation and AAR Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.