Correlation Between Hexcel and AAR Corp

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

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

Diversification Opportunities for Hexcel and AAR Corp

0.25

Correlation Coefficient

Hexcel  AAR Corp

Modest diversification

The 3 months correlation between Hexcel and AAR is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp and Hexcel 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 Hexcel are associated (or correlated) with AAR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAR Corp has no effect on the direction of Hexcel i.e., Hexcel and AAR Corp go up and down completely randomly.

Pair Corralation between Hexcel and AAR Corp

Considering the 90-day investment horizon Hexcel is expected to under-perform the AAR Corp. In addition to that, Hexcel is 1.01 times more volatile than AAR Corp. It trades about -0.05 of its total potential returns per unit of risk. AAR Corp is currently generating about 0.14 per unit of volatility. If you would invest  6,040  in AAR Corp on December 27, 2024 and sell it today you would earn a total of  930.00  from holding AAR Corp or generate 15.4% return on investment over 90 days.

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

Hexcel  vs.  AAR Corp

Hexcel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hexcel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Hexcel is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

AAR Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AAR Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal forward indicators, AAR Corp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hexcel and AAR Corp

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

The idea behind Hexcel and AAR Corp 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.