Correlation Between Textron and Vertical Aerospace
Can any of the company-specific risk be diversified away by investing in both Textron and Vertical Aerospace 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 Textron and Vertical Aerospace into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Textron and Vertical Aerospace, you can compare the effects of market volatilities on Textron and Vertical Aerospace 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 Textron with a short position of Vertical Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Textron and Vertical Aerospace.
Diversification Opportunities for Textron and Vertical Aerospace
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Textron and Vertical is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Textron and Vertical Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertical Aerospace and Textron 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 Textron are associated (or correlated) with Vertical Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertical Aerospace has no effect on the direction of Textron i.e., Textron and Vertical Aerospace go up and down completely randomly.
Pair Corralation between Textron and Vertical Aerospace
Considering the 90-day investment horizon Textron is expected to generate 11.24 times less return on investment than Vertical Aerospace. But when comparing it to its historical volatility, Textron is 7.55 times less risky than Vertical Aerospace. It trades about 0.08 of its potential returns per unit of risk. Vertical Aerospace is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 574.00 in Vertical Aerospace on August 28, 2024 and sell it today you would earn a total of 123.00 from holding Vertical Aerospace or generate 21.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Textron vs. Vertical Aerospace
Performance |
| Timeline |
| Textron |
| Vertical Aerospace |
Textron and Vertical Aerospace Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Textron and Vertical Aerospace
The main advantage of trading using opposite Textron and Vertical Aerospace positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Textron position performs unexpectedly, Vertical Aerospace 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 Vertical Aerospace will offset losses from the drop in Vertical Aerospace's long position.| Textron vs. Hexcel | Textron vs. Huntington Ingalls Industries | Textron vs. Curtiss Wright | Textron vs. Mercury Systems |
| Vertical Aerospace vs. Redwire Corp | Vertical Aerospace vs. Sidus Space | Vertical Aerospace vs. Rocket Lab USA | Vertical Aerospace vs. Momentus |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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