Correlation Between AAR Corp and AeroVironment

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

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

Diversification Opportunities for AAR Corp and AeroVironment

0.0

Correlation Coefficient

AAR Corp  AeroVironment

Pay attention - limited upside

The 3 months correlation between AAR and AeroVironment is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding AAR Corp and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment and AAR Corp 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 AAR 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 AAR Corp i.e., AAR Corp and AeroVironment go up and down completely randomly.

Pair Corralation between AAR Corp and AeroVironment

Considering the 90-day investment horizon AAR Corp is expected to generate 2.1 times less return on investment than AeroVironment. But when comparing it to its historical volatility, AAR Corp is 1.54 times less risky than AeroVironment. It trades about 0.04 of its potential returns per unit of risk. AeroVironment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,291  in AeroVironment on October 11, 2024 and sell it today you would earn a total of  8,050  from holding AeroVironment or generate 97.09% return on investment over 90 days.

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

AAR Corp  vs.  AeroVironment

AAR Corp

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AAR Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward indicators, AAR Corp may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with AAR Corp and AeroVironment

The main advantage of trading using opposite AAR Corp and AeroVironment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AAR Corp 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 AAR 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.