Correlation Between Raytheon Technologies and Kratos Defense

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

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

Diversification Opportunities for Raytheon Technologies and Kratos Defense

0.92

Correlation Coefficient

Raytheon Technologies  Kratos Defense

Almost no diversification

The 3 months correlation between Raytheon and Kratos is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies Corp 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 Raytheon Technologies 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 Raytheon Technologies Corp 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 Raytheon Technologies i.e., Raytheon Technologies and Kratos Defense go up and down completely randomly.

Pair Corralation between Raytheon Technologies and Kratos Defense

Considering the 90-day investment horizon Raytheon Technologies is expected to generate 2.39 times less return on investment than Kratos Defense. But when comparing it to its historical volatility, Raytheon Technologies Corp is 2.8 times less risky than Kratos Defense. It trades about 0.26 of its potential returns per unit of risk. Kratos Defense Security is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  3,588  in Kratos Defense Security on May 5, 2025 and sell it today you would earn a total of  2,083  from holding Kratos Defense Security or generate 58.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Raytheon Technologies Corp  vs.  Kratos Defense Security

Raytheon Technologies

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Raytheon Technologies showed 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 Raytheon Technologies and Kratos Defense

The main advantage of trading using opposite Raytheon Technologies and Kratos Defense positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Raytheon Technologies 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 Raytheon Technologies Corp 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.