Correlation Between AeroVironment and AAR Corp

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

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

Diversification Opportunities for AeroVironment and AAR Corp

0.0

Correlation Coefficient

AeroVironment  AAR Corp

Pay attention - limited upside

The 3 months correlation between AeroVironment and AAR is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding AeroVironment and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp and AeroVironment 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 AeroVironment are associated (or correlated) with AAR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAR Corp has no effect on the direction of AeroVironment i.e., AeroVironment and AAR Corp go up and down completely randomly.

Pair Corralation between AeroVironment and AAR Corp

Given the investment horizon of 90 days AeroVironment is expected to generate 1.54 times more return on investment than AAR Corp. However, AeroVironment is 1.54 times more volatile than AAR Corp. It trades about 0.06 of its potential returns per unit of risk. AAR Corp is currently generating about 0.04 per unit of risk. 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

AeroVironment  vs.  AAR Corp

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.

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.

Pair Trading with AeroVironment and AAR Corp

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

The idea behind AeroVironment and AAR Corp 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.