Correlation Between Elbit Systems and Spirit Aerosystems

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

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

Diversification Opportunities for Elbit Systems and Spirit Aerosystems

0.87

Correlation Coefficient

Elbit Systems  Spirit Aerosystems

Very poor diversification

The 3 months correlation between Elbit and Spirit is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Elbit Systems and Spirit Aerosystems Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirit Aerosystems and Elbit Systems 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 Elbit Systems are associated (or correlated) with Spirit Aerosystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirit Aerosystems has no effect on the direction of Elbit Systems i.e., Elbit Systems and Spirit Aerosystems go up and down completely randomly.

Pair Corralation between Elbit Systems and Spirit Aerosystems

Given the investment horizon of 90 days Elbit Systems is expected to generate 1.44 times more return on investment than Spirit Aerosystems. However, Elbit Systems is 1.44 times more volatile than Spirit Aerosystems Holdings. It trades about 0.25 of its potential returns per unit of risk. Spirit Aerosystems Holdings is currently generating about 0.09 per unit of risk. If you would invest  24,371  in Elbit Systems on November 28, 2024 and sell it today you would earn a total of  5,543  from holding Elbit Systems or generate 22.74% return on investment over 90 days.

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

Elbit Systems  vs.  Spirit Aerosystems Holdings

Elbit Systems

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Elbit Systems are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Elbit Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Spirit Aerosystems

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spirit Aerosystems Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Spirit Aerosystems is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Elbit Systems and Spirit Aerosystems

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

The idea behind Elbit Systems and Spirit Aerosystems 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.