Correlation Between AeroVironment and KWESST Micro

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

By analyzing existing cross correlation between AeroVironment and KWESST Micro Systems, you can compare the effects of market volatilities on AeroVironment and KWESST Micro 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 KWESST Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of AeroVironment and KWESST Micro.

Diversification Opportunities for AeroVironment and KWESST Micro

0.58

Correlation Coefficient

AeroVironment  KWESST Micro

Very weak diversification

The 3 months correlation between AeroVironment and KWESST is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding AeroVironment and KWESST Micro Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KWESST Micro Systems 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 KWESST Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KWESST Micro Systems has no effect on the direction of AeroVironment i.e., AeroVironment and KWESST Micro go up and down completely randomly.

Pair Corralation between AeroVironment and KWESST Micro

Given the investment horizon of 90 days AeroVironment is expected to generate 0.25 times more return on investment than KWESST Micro. However, AeroVironment is 4.03 times less risky than KWESST Micro. It trades about -0.14 of its potential returns per unit of risk. KWESST Micro Systems is currently generating about -0.09 per unit of risk. If you would invest  15,518  in AeroVironment on December 30, 2024 and sell it today you would lose (3,425) from holding AeroVironment or give up 22.07% of portfolio value over 90 days.

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

AeroVironment  vs.  KWESST Micro Systems

AeroVironment

Risk-Adjusted Performance

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 April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

KWESST Micro Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days KWESST Micro Systems 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 rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with AeroVironment and KWESST Micro

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

The idea behind AeroVironment and KWESST Micro Systems 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.