Correlation Between HEICO and Kratos Defense
Can any of the company-specific risk be diversified away by investing in both HEICO and Kratos Defense 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 HEICO and Kratos Defense into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HEICO and Kratos Defense Security, you can compare the effects of market volatilities on HEICO and Kratos Defense 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 HEICO with a short position of Kratos Defense. Check out your portfolio center. Please also check ongoing floating volatility patterns of HEICO and Kratos Defense.
Diversification Opportunities for HEICO and Kratos Defense
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between HEICO and Kratos is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding HEICO and Kratos Defense Security in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kratos Defense Security and HEICO 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 HEICO are associated (or correlated) with Kratos Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kratos Defense Security has no effect on the direction of HEICO i.e., HEICO and Kratos Defense go up and down completely randomly.
Pair Corralation between HEICO and Kratos Defense
Assuming the 90 days horizon HEICO is expected to generate 1.28 times less return on investment than Kratos Defense. But when comparing it to its historical volatility, HEICO is 2.37 times less risky than Kratos Defense. It trades about 0.3 of its potential returns per unit of risk. Kratos Defense Security is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,420 in Kratos Defense Security on August 29, 2024 and sell it today you would earn a total of 304.00 from holding Kratos Defense Security or generate 12.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
HEICO vs. Kratos Defense Security
Performance |
| Timeline |
| HEICO |
| Kratos Defense Security |
HEICO and Kratos Defense Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HEICO and Kratos Defense
The main advantage of trading using opposite HEICO and Kratos Defense positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HEICO position performs unexpectedly, Kratos Defense 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 Kratos Defense will offset losses from the drop in Kratos Defense's long position.| HEICO vs. Vertical Aerospace | HEICO vs. Rolls Royce Holdings plc | HEICO vs. Embraer SA ADR | HEICO vs. Rocket Lab USA |
| Kratos Defense vs. Northrop Grumman | Kratos Defense vs. General Dynamics | Kratos Defense vs. Raytheon Technologies Corp | Kratos Defense vs. Huntington Ingalls Industries |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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