Correlation Between Transdigm Group and Vertical Aerospace

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

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

Diversification Opportunities for Transdigm Group and Vertical Aerospace

-0.39

Correlation Coefficient

Transdigm Group  Vertical Aerospace

Very good diversification

The 3 months correlation between Transdigm and Vertical is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Transdigm Group Incorporated and Vertical Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertical Aerospace and Transdigm Group 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 Transdigm Group Incorporated 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 Transdigm Group i.e., Transdigm Group and Vertical Aerospace go up and down completely randomly.

Pair Corralation between Transdigm Group and Vertical Aerospace

Considering the 90-day investment horizon Transdigm Group Incorporated is expected to under-perform the Vertical Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, Transdigm Group Incorporated is 6.76 times less risky than Vertical Aerospace. The stock trades about -0.08 of its potential returns per unit of risk. The Vertical Aerospace is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  607.00  in Vertical Aerospace on October 11, 2024 and sell it today you would earn a total of  344.00  from holding Vertical Aerospace or generate 56.67% return on investment over 90 days.

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

Transdigm Group Incorporated  vs.  Vertical Aerospace

Transdigm Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vertical Aerospace

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vertical Aerospace are ranked lower than 9 (%) 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 Transdigm Group and Vertical Aerospace

The main advantage of trading using opposite Transdigm Group and Vertical Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Transdigm Group 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 Transdigm Group Incorporated 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.