Correlation Between Dexterra and Vertical Aerospace

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

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

Diversification Opportunities for Dexterra and Vertical Aerospace

0.79

Correlation Coefficient

Dexterra  Vertical Aerospace

Poor diversification

The 3 months correlation between Dexterra and Vertical is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Dexterra Group and Vertical Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertical Aerospace and Dexterra 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 Dexterra Group are associated (or correlated) with Vertical Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertical Aerospace has no effect on the direction of Dexterra i.e., Dexterra and Vertical Aerospace go up and down completely randomly.

Pair Corralation between Dexterra and Vertical Aerospace

Assuming the 90 days horizon Dexterra is expected to generate 7.65 times less return on investment than Vertical Aerospace. But when comparing it to its historical volatility, Dexterra Group is 8.55 times less risky than Vertical Aerospace. It trades about 0.15 of its potential returns per unit of risk. Vertical Aerospace is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  628.00  in Vertical Aerospace on October 9, 2024 and sell it today you would earn a total of  486.00  from holding Vertical Aerospace or generate 77.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Dexterra Group  vs.  Vertical Aerospace

Dexterra Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dexterra Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Dexterra reported solid returns over the last few months and may actually be approaching a breakup point.

Vertical Aerospace

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vertical Aerospace are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Vertical Aerospace disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dexterra and Vertical Aerospace

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

The idea behind Dexterra Group and Vertical Aerospace 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.