Correlation Between Kratos Defense and AAR Corp
Can any of the company-specific risk be diversified away by investing in both Kratos Defense and AAR Corp 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 Kratos Defense and AAR Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kratos Defense Security and AAR Corp, you can compare the effects of market volatilities on Kratos Defense and AAR Corp 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 Kratos Defense with a short position of AAR Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kratos Defense and AAR Corp.
Diversification Opportunities for Kratos Defense and AAR Corp
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Kratos and AAR is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Kratos Defense Security and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp and Kratos Defense 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 Kratos Defense Security are associated (or correlated) with AAR Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAR Corp has no effect on the direction of Kratos Defense i.e., Kratos Defense and AAR Corp go up and down completely randomly.
Pair Corralation between Kratos Defense and AAR Corp
Given the investment horizon of 90 days Kratos Defense Security is expected to under-perform the AAR Corp. In addition to that, Kratos Defense is 2.12 times more volatile than AAR Corp. It trades about -0.55 of its total potential returns per unit of risk. AAR Corp is currently generating about -0.4 per unit of volatility. If you would invest 6,889 in AAR Corp on November 27, 2024 and sell it today you would lose (702.00) from holding AAR Corp or give up 10.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kratos Defense Security vs. AAR Corp
Performance |
| Timeline |
| Kratos Defense Security |
| AAR Corp |
Kratos Defense and AAR Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kratos Defense and AAR Corp
The main advantage of trading using opposite Kratos Defense and AAR Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kratos Defense position performs unexpectedly, AAR Corp 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 AAR Corp will offset losses from the drop in AAR Corp's long position.| Kratos Defense vs. Northrop Grumman | Kratos Defense vs. General Dynamics | Kratos Defense vs. Raytheon Technologies Corp | Kratos Defense vs. Huntington Ingalls Industries |
| AAR Corp vs. Curtiss Wright | AAR Corp vs. Hexcel | AAR Corp vs. Moog Inc | AAR Corp vs. Ducommun Incorporated |
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.
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