Correlation Between KWESST Micro and Kratos Defense

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

By analyzing existing cross correlation between KWESST Micro Systems and Kratos Defense Security, you can compare the effects of market volatilities on KWESST Micro and Kratos Defense 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 KWESST Micro with a short position of Kratos Defense. Check out your portfolio center. Please also check ongoing floating volatility patterns of KWESST Micro and Kratos Defense.

Diversification Opportunities for KWESST Micro and Kratos Defense

0.68

Correlation Coefficient

KWESST Micro  Kratos Defense

Poor diversification

The 3 months correlation between KWESST and Kratos is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding KWESST Micro Systems and Kratos Defense Security in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kratos Defense Security and KWESST Micro 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 KWESST Micro Systems are associated (or correlated) with Kratos Defense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kratos Defense Security has no effect on the direction of KWESST Micro i.e., KWESST Micro and Kratos Defense go up and down completely randomly.

Pair Corralation between KWESST Micro and Kratos Defense

Considering the 90-day investment horizon KWESST Micro Systems is expected to generate 5.27 times more return on investment than Kratos Defense. However, KWESST Micro is 5.27 times more volatile than Kratos Defense Security. It trades about 0.14 of its potential returns per unit of risk. Kratos Defense Security is currently generating about 0.22 per unit of risk. If you would invest  637.00  in KWESST Micro Systems on May 5, 2025 and sell it today you would earn a total of  448.00  from holding KWESST Micro Systems or generate 70.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	61.9%
Values	Daily Returns

KWESST Micro Systems  vs.  Kratos Defense Security

KWESST Micro Systems

Risk-Adjusted Performance

Good

Over the last 90 days KWESST Micro Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather weak basic indicators, KWESST Micro exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 17 (%) 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.

Pair Trading with KWESST Micro and Kratos Defense

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

The idea behind KWESST Micro Systems and Kratos Defense Security 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.