Correlation Between Elbit Systems and AeroVironment

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

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

Diversification Opportunities for Elbit Systems and AeroVironment

-0.52

Correlation Coefficient

Elbit Systems  AeroVironment

Excellent diversification

The 3 months correlation between Elbit and AeroVironment is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Elbit Systems and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment and Elbit Systems 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 Elbit Systems are associated (or correlated) with AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Elbit Systems i.e., Elbit Systems and AeroVironment go up and down completely randomly.

Pair Corralation between Elbit Systems and AeroVironment

Given the investment horizon of 90 days Elbit Systems is expected to under-perform the AeroVironment. In addition to that, Elbit Systems is 1.21 times more volatile than AeroVironment. It trades about -0.3 of its total potential returns per unit of risk. AeroVironment is currently generating about 0.35 per unit of volatility. If you would invest  18,733  in AeroVironment on March 10, 2024 and sell it today you would earn a total of  1,496  from holding AeroVironment or generate 7.99% return on investment over 90 days.

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

Elbit Systems  vs.  AeroVironment

Elbit Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Elbit Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's essential indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

AeroVironment

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AeroVironment are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, AeroVironment showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Elbit Systems and AeroVironment

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

The idea behind Elbit Systems and AeroVironment 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.