Correlation Between AAR Corp and Innovative Solutions

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

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

Diversification Opportunities for AAR Corp and Innovative Solutions

0.35

Correlation Coefficient

AAR Corp  Innovative Solutions

Weak diversification

The 3 months correlation between AAR and Innovative is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding AAR Corp and Innovative Solutions and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovative Solutions and 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 Innovative Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovative Solutions and has no effect on the direction of AAR Corp i.e., AAR Corp and Innovative Solutions go up and down completely randomly.

Pair Corralation between AAR Corp and Innovative Solutions

Considering the 90-day investment horizon AAR Corp is expected to under-perform the Innovative Solutions. But the stock apears to be less risky and, when comparing its historical volatility, AAR Corp is 2.06 times less risky than Innovative Solutions. The stock trades about -0.02 of its potential returns per unit of risk. The Innovative Solutions and is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  746.00  in Innovative Solutions and on November 19, 2024 and sell it today you would earn a total of  117.00  from holding Innovative Solutions and or generate 15.68% return on investment over 90 days.

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

AAR Corp  vs.  Innovative Solutions and

AAR Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days AAR Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, AAR Corp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Innovative Solutions and

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Innovative Solutions and are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Innovative Solutions exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AAR Corp and Innovative Solutions

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

The idea behind AAR Corp and Innovative Solutions and 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.