Correlation Between AeroVironment and Visteon Corp

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

By analyzing existing cross correlation between AeroVironment and Visteon Corp, you can compare the effects of market volatilities on AeroVironment and Visteon 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 AeroVironment with a short position of Visteon Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of AeroVironment and Visteon Corp.

Diversification Opportunities for AeroVironment and Visteon Corp

-0.65

Correlation Coefficient

AeroVironment  Visteon Corp

Excellent diversification

The 3 months correlation between AeroVironment and Visteon is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding AeroVironment and Visteon Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visteon Corp and AeroVironment 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 AeroVironment are associated (or correlated) with Visteon Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visteon Corp has no effect on the direction of AeroVironment i.e., AeroVironment and Visteon Corp go up and down completely randomly.

Pair Corralation between AeroVironment and Visteon Corp

Given the investment horizon of 90 days AeroVironment is expected to generate 1.51 times more return on investment than Visteon Corp. However, AeroVironment is 1.51 times more volatile than Visteon Corp. It trades about 0.13 of its potential returns per unit of risk. Visteon Corp is currently generating about -0.12 per unit of risk. If you would invest  16,842  in AeroVironment on July 20, 2024 and sell it today you would earn a total of  4,721  from holding AeroVironment or generate 28.03% return on investment over 90 days.

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

AeroVironment  vs.  Visteon Corp

AeroVironment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AeroVironment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, AeroVironment showed solid returns over the last few months and may actually be approaching a breakup point.

Visteon Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Visteon Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in November 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with AeroVironment and Visteon Corp

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

The idea behind AeroVironment and Visteon Corp 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.