Correlation Between AeroVironment and Japan Steel

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

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

Diversification Opportunities for AeroVironment and Japan Steel

-0.45

Correlation Coefficient

AeroVironment  Japan Steel

Very good diversification

The 3 months correlation between AeroVironment and Japan is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding AeroVironment and The Japan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Steel and AeroVironment 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 AeroVironment are associated (or correlated) with Japan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Steel has no effect on the direction of AeroVironment i.e., AeroVironment and Japan Steel go up and down completely randomly.

Pair Corralation between AeroVironment and Japan Steel

Assuming the 90 days horizon AeroVironment is expected to generate 1.75 times more return on investment than Japan Steel. However, AeroVironment is 1.75 times more volatile than The Japan Steel. It trades about -0.01 of its potential returns per unit of risk. The Japan Steel is currently generating about -0.22 per unit of risk. If you would invest  15,795  in AeroVironment on October 10, 2024 and sell it today you would lose (330.00) from holding AeroVironment or give up 2.09% of portfolio value over 90 days.

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

AeroVironment  vs.  The Japan Steel

AeroVironment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AeroVironment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Japan Steel

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Japan Steel are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Japan Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AeroVironment and Japan Steel

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

The idea behind AeroVironment and The Japan Steel 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.