Correlation Between Vertical Aerospace and BWX Technologies

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

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

Diversification Opportunities for Vertical Aerospace and BWX Technologies

0.24

Correlation Coefficient

Vertical Aerospace  BWX Technologies

Modest diversification

The 3 months correlation between Vertical and BWX is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Vertical Aerospace and BWX Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BWX Technologies and Vertical Aerospace 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 Vertical Aerospace are associated (or correlated) with BWX Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BWX Technologies has no effect on the direction of Vertical Aerospace i.e., Vertical Aerospace and BWX Technologies go up and down completely randomly.

Pair Corralation between Vertical Aerospace and BWX Technologies

Given the investment horizon of 90 days Vertical Aerospace is expected to under-perform the BWX Technologies. In addition to that, Vertical Aerospace is 1.84 times more volatile than BWX Technologies. It trades about -0.22 of its total potential returns per unit of risk. BWX Technologies is currently generating about -0.18 per unit of volatility. If you would invest  11,293  in BWX Technologies on December 2, 2024 and sell it today you would lose (896.00) from holding BWX Technologies or give up 7.93% of portfolio value over 90 days.

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

Vertical Aerospace  vs.  BWX Technologies

Vertical Aerospace

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vertical Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

BWX Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days BWX Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Vertical Aerospace and BWX Technologies

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

The idea behind Vertical Aerospace and BWX Technologies 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.