Correlation Between Kratos Defense and Redwire Corp

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

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

Diversification Opportunities for Kratos Defense and Redwire Corp

0.71

Correlation Coefficient

Kratos Defense  Redwire Corp

Poor diversification

The 3 months correlation between Kratos and Redwire is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Kratos Defense Security and Redwire Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Redwire Corp and Kratos Defense 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 Kratos Defense Security are associated (or correlated) with Redwire Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Redwire Corp has no effect on the direction of Kratos Defense i.e., Kratos Defense and Redwire Corp go up and down completely randomly.

Pair Corralation between Kratos Defense and Redwire Corp

Given the investment horizon of 90 days Kratos Defense is expected to generate 1.83 times less return on investment than Redwire Corp. But when comparing it to its historical volatility, Kratos Defense Security is 4.6 times less risky than Redwire Corp. It trades about 0.51 of its potential returns per unit of risk. Redwire Corp is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,507  in Redwire Corp on October 25, 2024 and sell it today you would earn a total of  658.00  from holding Redwire Corp or generate 43.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Kratos Defense Security  vs.  Redwire Corp

Kratos Defense Security

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kratos Defense Security are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Kratos Defense unveiled solid returns over the last few months and may actually be approaching a breakup point.

Redwire Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Redwire Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Redwire Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kratos Defense and Redwire Corp

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

The idea behind Kratos Defense Security and Redwire 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.