Correlation Between VSE and Spirit Aerosystems

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

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

Diversification Opportunities for VSE and Spirit Aerosystems

-0.48

Correlation Coefficient

VSE  Spirit Aerosystems

Very good diversification

The 3 months correlation between VSE and Spirit is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding VSE Corp. and Spirit Aerosystems Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirit Aerosystems and VSE 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 VSE Corporation are associated (or correlated) with Spirit Aerosystems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirit Aerosystems has no effect on the direction of VSE i.e., VSE and Spirit Aerosystems go up and down completely randomly.

Pair Corralation between VSE and Spirit Aerosystems

Given the investment horizon of 90 days VSE Corporation is expected to generate 0.82 times more return on investment than Spirit Aerosystems. However, VSE Corporation is 1.22 times less risky than Spirit Aerosystems. It trades about 0.08 of its potential returns per unit of risk. Spirit Aerosystems Holdings is currently generating about 0.02 per unit of risk. If you would invest  4,453  in VSE Corporation on September 14, 2024 and sell it today you would earn a total of  6,457  from holding VSE Corporation or generate 145.0% return on investment over 90 days.

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

VSE Corp.  vs.  Spirit Aerosystems Holdings

VSE Corporation

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VSE Corporation are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, VSE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Spirit Aerosystems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spirit Aerosystems Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Spirit Aerosystems is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with VSE and Spirit Aerosystems

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

The idea behind VSE Corporation and Spirit Aerosystems Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.