Correlation Between AstroNova and Red Cat

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

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

Diversification Opportunities for AstroNova and Red Cat

0.42

Correlation Coefficient

AstroNova  Red Cat

Very weak diversification

The 3 months correlation between AstroNova and Red is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding AstroNova and Red Cat Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Cat Holdings and AstroNova 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 AstroNova are associated (or correlated) with Red Cat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Cat Holdings has no effect on the direction of AstroNova i.e., AstroNova and Red Cat go up and down completely randomly.

Pair Corralation between AstroNova and Red Cat

Given the investment horizon of 90 days AstroNova is expected to generate 24.42 times less return on investment than Red Cat. But when comparing it to its historical volatility, AstroNova is 3.64 times less risky than Red Cat. It trades about 0.04 of its potential returns per unit of risk. Red Cat Holdings is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  295.00  in Red Cat Holdings on September 3, 2024 and sell it today you would earn a total of  762.00  from holding Red Cat Holdings or generate 258.31% return on investment over 90 days.

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

AstroNova  vs.  Red Cat Holdings

AstroNova

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AstroNova are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, AstroNova is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Red Cat Holdings

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Red Cat Holdings are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Red Cat unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AstroNova and Red Cat

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

The idea behind AstroNova and Red Cat Holdings 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.