Correlation Between Archer Aviation and Vertical Aerospace

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

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

Diversification Opportunities for Archer Aviation and Vertical Aerospace

0.2

Correlation Coefficient

Archer Aviation  Vertical Aerospace

Modest diversification

The 3 months correlation between Archer and Vertical is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Archer Aviation and Vertical Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertical Aerospace and Archer Aviation 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 Archer Aviation are associated (or correlated) with Vertical Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertical Aerospace has no effect on the direction of Archer Aviation i.e., Archer Aviation and Vertical Aerospace go up and down completely randomly.

Pair Corralation between Archer Aviation and Vertical Aerospace

Given the investment horizon of 90 days Archer Aviation is expected to under-perform the Vertical Aerospace. But the stock apears to be less risky and, when comparing its historical volatility, Archer Aviation is 2.05 times less risky than Vertical Aerospace. The stock trades about -0.15 of its potential returns per unit of risk. The Vertical Aerospace is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  68.00  in Vertical Aerospace on February 23, 2024 and sell it today you would earn a total of  3.00  from holding Vertical Aerospace or generate 4.41% return on investment over 90 days.

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

Archer Aviation  vs.  Vertical Aerospace

Archer Aviation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Archer Aviation has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Vertical Aerospace

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vertical Aerospace are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Vertical Aerospace disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Archer Aviation and Vertical Aerospace

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

The idea behind Archer Aviation and Vertical Aerospace 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.