Correlation Between VSE and Kratos Defense

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

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

Diversification Opportunities for VSE and Kratos Defense

0.68

Correlation Coefficient

VSE  Kratos Defense

Poor diversification

The 3 months correlation between VSE and Kratos is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding VSE Corp. 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 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 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 VSE i.e., VSE and Kratos Defense go up and down completely randomly.

Pair Corralation between VSE and Kratos Defense

Given the investment horizon of 90 days VSE is expected to generate 1.27 times less return on investment than Kratos Defense. But when comparing it to its historical volatility, VSE Corporation is 1.31 times less risky than Kratos Defense. It trades about 0.2 of its potential returns per unit of risk. Kratos Defense Security is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  2,299  in Kratos Defense Security on September 5, 2024 and sell it today you would earn a total of  337.00  from holding Kratos Defense Security or generate 14.66% return on investment over 90 days.

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

VSE Corp.  vs.  Kratos Defense Security

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.

Kratos Defense Security

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kratos Defense Security are ranked lower than 9 (%) 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 VSE and Kratos Defense

The main advantage of trading using opposite VSE and Kratos Defense positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VSE 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 VSE Corporation 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.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.