Correlation Between Heico and AeroVironment

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

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

Diversification Opportunities for Heico and AeroVironment

0.61

Correlation Coefficient

Heico  AeroVironment

Poor diversification

The 3 months correlation between Heico and AeroVironment is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Heico and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment 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 AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Heico i.e., Heico and AeroVironment go up and down completely randomly.

Pair Corralation between Heico and AeroVironment

Considering the 90-day investment horizon Heico is expected to under-perform the AeroVironment. But the stock apears to be less risky and, when comparing its historical volatility, Heico is 2.11 times less risky than AeroVironment. The stock trades about -0.2 of its potential returns per unit of risk. The AeroVironment is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  19,489  in AeroVironment on November 19, 2024 and sell it today you would lose (3,790) from holding AeroVironment or give up 19.45% of portfolio value over 90 days.

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

Heico  vs.  AeroVironment

Heico

Risk-Adjusted Performance

Very Weak

Over the last 90 days Heico 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 technical and fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

AeroVironment

Risk-Adjusted Performance

Very Weak

Over the last 90 days AeroVironment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in March 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Heico and AeroVironment

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

The idea behind Heico and AeroVironment 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.