Correlation Between CPI Aerostructures and VSE

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

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

Diversification Opportunities for CPI Aerostructures and VSE

-0.5

Correlation Coefficient

CPI Aerostructures  VSE

Very good diversification

The 3 months correlation between CPI and VSE is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding CPI Aerostructures and VSE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VSE Corporation and CPI Aerostructures 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 CPI Aerostructures are associated (or correlated) with VSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VSE Corporation has no effect on the direction of CPI Aerostructures i.e., CPI Aerostructures and VSE go up and down completely randomly.

Pair Corralation between CPI Aerostructures and VSE

Considering the 90-day investment horizon CPI Aerostructures is expected to under-perform the VSE. In addition to that, CPI Aerostructures is 1.31 times more volatile than VSE Corporation. It trades about -0.02 of its total potential returns per unit of risk. VSE Corporation is currently generating about 0.14 per unit of volatility. If you would invest  9,770  in VSE Corporation on December 26, 2024 and sell it today you would earn a total of  2,759  from holding VSE Corporation or generate 28.24% return on investment over 90 days.

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

CPI Aerostructures  vs.  VSE Corp.

CPI Aerostructures

Risk-Adjusted Performance

Very Weak

Over the last 90 days CPI Aerostructures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CPI Aerostructures is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

VSE Corporation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VSE Corporation are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, VSE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CPI Aerostructures and VSE

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

The idea behind CPI Aerostructures and VSE Corporation 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.