Correlation Between HEICO and Huntington Ingalls

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

By analyzing existing cross correlation between HEICO and Huntington Ingalls Industries, you can compare the effects of market volatilities on HEICO and Huntington Ingalls 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 Huntington Ingalls. Check out your portfolio center. Please also check ongoing floating volatility patterns of HEICO and Huntington Ingalls.

Diversification Opportunities for HEICO and Huntington Ingalls

0.43

Correlation Coefficient

HEICO  Huntington Ingalls

Very weak diversification

The 3 months correlation between HEICO and Huntington is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding HEICO and Huntington Ingalls Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huntington Ingalls 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 Huntington Ingalls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huntington Ingalls has no effect on the direction of HEICO i.e., HEICO and Huntington Ingalls go up and down completely randomly.

Pair Corralation between HEICO and Huntington Ingalls

Assuming the 90 days horizon HEICO is expected to generate 1.03 times less return on investment than Huntington Ingalls. But when comparing it to its historical volatility, HEICO is 1.59 times less risky than Huntington Ingalls. It trades about 0.1 of its potential returns per unit of risk. Huntington Ingalls Industries is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  18,695  in Huntington Ingalls Industries on December 30, 2024 and sell it today you would earn a total of  1,837  from holding Huntington Ingalls Industries or generate 9.83% return on investment over 90 days.

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

HEICO  vs.  Huntington Ingalls Industries

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.

Huntington Ingalls

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Huntington Ingalls Industries are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain forward indicators, Huntington Ingalls demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HEICO and Huntington Ingalls

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

The idea behind HEICO and Huntington Ingalls Industries 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.