Correlation Between VSE and CPI Aerostructures

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

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

Diversification Opportunities for VSE and CPI Aerostructures

-0.5

Correlation Coefficient

VSE  CPI Aerostructures

Very good diversification

The 3 months correlation between VSE and CPI is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding VSE Corp. and CPI Aerostructures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPI Aerostructures and VSE 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 VSE Corporation are associated (or correlated) with CPI Aerostructures. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPI Aerostructures has no effect on the direction of VSE i.e., VSE and CPI Aerostructures go up and down completely randomly.

Pair Corralation between VSE and CPI Aerostructures

Given the investment horizon of 90 days VSE Corporation is expected to generate 0.77 times more return on investment than CPI Aerostructures. However, VSE Corporation is 1.31 times less risky than CPI Aerostructures. It trades about 0.14 of its potential returns per unit of risk. CPI Aerostructures is currently generating about -0.02 per unit of risk. If you would invest  9,770  in VSE Corporation on December 26, 2024 and sell it today you would earn a total of  2,759  from holding VSE Corporation or generate 28.24% return on investment over 90 days.

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

VSE Corp.  vs.  CPI Aerostructures

VSE Corporation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VSE Corporation are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, VSE exhibited solid returns over the last few months and may actually be approaching a breakup point.

CPI Aerostructures

Risk-Adjusted Performance

Very Weak

Over the last 90 days CPI Aerostructures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CPI Aerostructures is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with VSE and CPI Aerostructures

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

The idea behind VSE Corporation and CPI Aerostructures 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.