Correlation Between AAR Corp and CPI Aerostructures

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

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

Diversification Opportunities for AAR Corp and CPI Aerostructures

0.52

Correlation Coefficient

AAR Corp  CPI Aerostructures

Very weak diversification

The 3 months correlation between AAR and CPI is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding AAR Corp and CPI Aerostructures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPI Aerostructures 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 CPI Aerostructures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPI Aerostructures has no effect on the direction of AAR Corp i.e., AAR Corp and CPI Aerostructures go up and down completely randomly.

Pair Corralation between AAR Corp and CPI Aerostructures

Considering the 90-day investment horizon AAR Corp is expected to generate 0.42 times more return on investment than CPI Aerostructures. However, AAR Corp is 2.37 times less risky than CPI Aerostructures. It trades about 0.13 of its potential returns per unit of risk. CPI Aerostructures is currently generating about -0.02 per unit of risk. If you would invest  6,105  in AAR Corp on December 26, 2024 and sell it today you would earn a total of  857.00  from holding AAR Corp or generate 14.04% return on investment over 90 days.

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

AAR Corp  vs.  CPI Aerostructures

AAR Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AAR Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward indicators, AAR Corp reported solid returns over the last few months and may actually be approaching a breakup point.

CPI Aerostructures

Risk-Adjusted Performance

Very Weak

Over the last 90 days CPI Aerostructures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CPI Aerostructures is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AAR Corp and CPI Aerostructures

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

The idea behind AAR Corp and CPI Aerostructures 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.