Correlation Between SIFCO Industries and AAR Corp

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

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

Diversification Opportunities for SIFCO Industries and AAR Corp

0.42

Correlation Coefficient

SIFCO Industries  AAR Corp

Very weak diversification

The 3 months correlation between SIFCO and AAR is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding SIFCO Industries and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp and SIFCO Industries 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 SIFCO Industries 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 SIFCO Industries i.e., SIFCO Industries and AAR Corp go up and down completely randomly.

Pair Corralation between SIFCO Industries and AAR Corp

Considering the 90-day investment horizon SIFCO Industries is expected to under-perform the AAR Corp. In addition to that, SIFCO Industries is 2.28 times more volatile than AAR Corp. It trades about -0.03 of its total potential returns per unit of risk. AAR Corp is currently generating about -0.05 per unit of volatility. If you would invest  6,957  in AAR Corp on December 1, 2024 and sell it today you would lose (473.00) from holding AAR Corp or give up 6.8% of portfolio value over 90 days.

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

SIFCO Industries  vs.  AAR Corp

SIFCO Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days SIFCO Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

AAR Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days AAR Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward indicators, AAR Corp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with SIFCO Industries and AAR Corp

The main advantage of trading using opposite SIFCO Industries and AAR Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SIFCO Industries 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 SIFCO Industries 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.