Correlation Between Woodward and AAR Corp
Can any of the company-specific risk be diversified away by investing in both Woodward 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 Woodward and AAR Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Woodward and AAR Corp, you can compare the effects of market volatilities on Woodward 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 Woodward with a short position of AAR Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Woodward and AAR Corp.
Diversification Opportunities for Woodward and AAR Corp
Very poor diversification
The 3 months correlation between Woodward and AAR is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Woodward and AAR Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAR Corp and Woodward 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 Woodward 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 Woodward i.e., Woodward and AAR Corp go up and down completely randomly.
Pair Corralation between Woodward and AAR Corp
Considering the 90-day investment horizon Woodward is expected to generate 1.27 times less return on investment than AAR Corp. But when comparing it to its historical volatility, Woodward is 1.59 times less risky than AAR Corp. It trades about 0.45 of its potential returns per unit of risk. AAR Corp is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest 6,060 in AAR Corp on October 20, 2024 and sell it today you would earn a total of 961.00 from holding AAR Corp or generate 15.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Woodward vs. AAR Corp
Performance |
| Timeline |
| Woodward |
| AAR Corp |
Woodward and AAR Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Woodward and AAR Corp
The main advantage of trading using opposite Woodward and AAR Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Woodward 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.| Woodward vs. Hexcel | Woodward vs. Ducommun Incorporated | Woodward vs. Mercury Systems | Woodward vs. AAR Corp |
| 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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