Correlation Between Boeing and AeroVironment

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

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

Diversification Opportunities for Boeing and AeroVironment

-0.68

Correlation Coefficient

Boeing  AeroVironment

Excellent diversification

The 3 months correlation between Boeing and AeroVironment is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding The Boeing and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment and Boeing 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 The Boeing are associated (or correlated) with AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Boeing i.e., Boeing and AeroVironment go up and down completely randomly.

Pair Corralation between Boeing and AeroVironment

Assuming the 90 days horizon The Boeing is expected to under-perform the AeroVironment. But the stock apears to be less risky and, when comparing its historical volatility, The Boeing is 1.78 times less risky than AeroVironment. The stock trades about -0.01 of its potential returns per unit of risk. The AeroVironment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  9,122  in AeroVironment on October 22, 2024 and sell it today you would earn a total of  6,808  from holding AeroVironment or generate 74.63% return on investment over 90 days.

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

The Boeing  vs.  AeroVironment

Boeing

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Boeing reported solid returns over the last few months and may actually be approaching a breakup point.

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. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Boeing and AeroVironment

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

The idea behind The Boeing and AeroVironment 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.