Correlation Between Textron and Vertical Aerospace

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

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

Diversification Opportunities for Textron and Vertical Aerospace

-0.62

Correlation Coefficient

Textron  Vertical Aerospace

Excellent diversification

The 3 months correlation between Textron and Vertical is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Textron and Vertical Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertical Aerospace and Textron 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 Textron 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 Textron i.e., Textron and Vertical Aerospace go up and down completely randomly.

Pair Corralation between Textron and Vertical Aerospace

Considering the 90-day investment horizon Textron is expected to under-perform the Vertical Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, Textron is 7.33 times less risky than Vertical Aerospace. The stock trades about -0.14 of its potential returns per unit of risk. The Vertical Aerospace is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  622.00  in Vertical Aerospace on October 12, 2024 and sell it today you would earn a total of  329.00  from holding Vertical Aerospace or generate 52.89% return on investment over 90 days.

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

Textron  vs.  Vertical Aerospace

Textron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Textron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Vertical Aerospace

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vertical Aerospace are ranked lower than 8 (%) 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 Textron and Vertical Aerospace

The main advantage of trading using opposite Textron and Vertical Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Textron 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 Textron 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.