Correlation Between Kratos Defense and Small Cap

Can any of the company-specific risk be diversified away by investing in both Kratos Defense and Small Cap 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 Small Cap 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 Small Cap Stock, you can compare the effects of market volatilities on Kratos Defense and Small Cap 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 Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kratos Defense and Small Cap.

Diversification Opportunities for Kratos Defense and Small Cap

0.61

Correlation Coefficient

Kratos Defense  Small Cap

Poor diversification

The 3 months correlation between Kratos and Small is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Kratos Defense Security and Small Cap Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Stock 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 Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Stock has no effect on the direction of Kratos Defense i.e., Kratos Defense and Small Cap go up and down completely randomly.

Pair Corralation between Kratos Defense and Small Cap

Given the investment horizon of 90 days Kratos Defense Security is expected to generate 3.09 times more return on investment than Small Cap. However, Kratos Defense is 3.09 times more volatile than Small Cap Stock. It trades about 0.27 of its potential returns per unit of risk. Small Cap Stock is currently generating about 0.2 per unit of risk. If you would invest  3,378  in Kratos Defense Security on April 30, 2025 and sell it today you would earn a total of  2,475  from holding Kratos Defense Security or generate 73.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Kratos Defense Security  vs.  Small Cap Stock

Kratos Defense Security

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kratos Defense Security are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Kratos Defense unveiled solid returns over the last few months and may actually be approaching a breakup point.

Small Cap Stock

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Stock are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Small Cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kratos Defense and Small Cap

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

The idea behind Kratos Defense Security and Small Cap Stock 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.