Correlation Between HEICO and Leonardo SpA

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

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

Diversification Opportunities for HEICO and Leonardo SpA

0.84

Correlation Coefficient

HEICO  Leonardo SpA

Very poor diversification

The 3 months correlation between HEICO and Leonardo is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding HEICO and Leonardo SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leonardo SpA ADR and HEICO 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 HEICO are associated (or correlated) with Leonardo SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leonardo SpA ADR has no effect on the direction of HEICO i.e., HEICO and Leonardo SpA go up and down completely randomly.

Pair Corralation between HEICO and Leonardo SpA

Assuming the 90 days horizon HEICO is expected to generate 4.97 times less return on investment than Leonardo SpA. But when comparing it to its historical volatility, HEICO is 1.75 times less risky than Leonardo SpA. It trades about 0.1 of its potential returns per unit of risk. Leonardo SpA ADR is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  1,346  in Leonardo SpA ADR on December 29, 2024 and sell it today you would earn a total of  1,089  from holding Leonardo SpA ADR or generate 80.91% return on investment over 90 days.

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

HEICO  vs.  Leonardo SpA ADR

HEICO

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HEICO are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, HEICO sustained solid returns over the last few months and may actually be approaching a breakup point.

Leonardo SpA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Leonardo SpA ADR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile primary indicators, Leonardo SpA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HEICO and Leonardo SpA

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

The idea behind HEICO and Leonardo SpA ADR 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.