Correlation Between VSE and Park Electrochemical

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

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

Diversification Opportunities for VSE and Park Electrochemical

-0.49

Correlation Coefficient

VSE  Park Electrochemical

Very good diversification

The 3 months correlation between VSE and Park is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding VSE Corp. and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical 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 Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of VSE i.e., VSE and Park Electrochemical go up and down completely randomly.

Pair Corralation between VSE and Park Electrochemical

Given the investment horizon of 90 days VSE Corporation is expected to generate 2.03 times more return on investment than Park Electrochemical. However, VSE is 2.03 times more volatile than Park Electrochemical. It trades about 0.13 of its potential returns per unit of risk. Park Electrochemical is currently generating about -0.04 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  2,559  from holding VSE Corporation or generate 26.19% 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.  Park Electrochemical

VSE Corporation

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VSE Corporation are ranked lower than 10 (%) 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.

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 rather sound forward-looking signals, Park Electrochemical is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with VSE and Park Electrochemical

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

The idea behind VSE Corporation and Park Electrochemical 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.