Correlation Between VSE and Smith Wesson

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

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

Diversification Opportunities for VSE and Smith Wesson

0.04

Correlation Coefficient

VSE  Smith Wesson

Significant diversification

The 3 months correlation between VSE and Smith is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding VSE Corp. and Smith Wesson Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Wesson Brands 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 Smith Wesson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Wesson Brands has no effect on the direction of VSE i.e., VSE and Smith Wesson go up and down completely randomly.

Pair Corralation between VSE and Smith Wesson

Given the investment horizon of 90 days VSE Corporation is expected to generate 0.81 times more return on investment than Smith Wesson. However, VSE Corporation is 1.23 times less risky than Smith Wesson. It trades about 0.1 of its potential returns per unit of risk. Smith Wesson Brands is currently generating about -0.01 per unit of risk. If you would invest  6,242  in VSE Corporation on September 14, 2024 and sell it today you would earn a total of  4,575  from holding VSE Corporation or generate 73.29% return on investment over 90 days.

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

VSE Corp.  vs.  Smith Wesson Brands

VSE Corporation

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VSE Corporation are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, VSE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Smith Wesson Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Wesson Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with VSE and Smith Wesson

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

The idea behind VSE Corporation and Smith Wesson Brands 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.