Correlation Between Park Electrochemical and VSE

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

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

Diversification Opportunities for Park Electrochemical and VSE

0.69

Correlation Coefficient

Park Electrochemical  VSE

Poor diversification

The 3 months correlation between Park and VSE is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Park Electrochemical and VSE Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VSE Corporation and Park Electrochemical 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 Park Electrochemical are associated (or correlated) with VSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VSE Corporation has no effect on the direction of Park Electrochemical i.e., Park Electrochemical and VSE go up and down completely randomly.

Pair Corralation between Park Electrochemical and VSE

Considering the 90-day investment horizon Park Electrochemical is expected to under-perform the VSE. But the stock apears to be less risky and, when comparing its historical volatility, Park Electrochemical is 2.12 times less risky than VSE. The stock trades about -0.4 of its potential returns per unit of risk. The VSE Corporation is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  10,318  in VSE Corporation on November 29, 2024 and sell it today you would lose (262.00) from holding VSE Corporation or give up 2.54% of portfolio value over 90 days.

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

Park Electrochemical  vs.  VSE Corp.

Park Electrochemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Park Electrochemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward-looking signals remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

VSE Corporation

Risk-Adjusted Performance

Very Weak

Over the last 90 days VSE Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Park Electrochemical and VSE

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

The idea behind Park Electrochemical and VSE Corporation 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.