Correlation Between GFL Environmental and AeroVironment

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

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

Diversification Opportunities for GFL Environmental and AeroVironment

0.69

Correlation Coefficient

GFL Environmental  AeroVironment

Poor diversification

The 3 months correlation between GFL and AeroVironment is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding GFL Environmental and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment and GFL Environmental 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 GFL Environmental 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 GFL Environmental i.e., GFL Environmental and AeroVironment go up and down completely randomly.

Pair Corralation between GFL Environmental and AeroVironment

Given the investment horizon of 90 days GFL Environmental is expected to generate 2.91 times less return on investment than AeroVironment. But when comparing it to its historical volatility, GFL Environmental is 1.42 times less risky than AeroVironment. It trades about 0.03 of its potential returns per unit of risk. AeroVironment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,125  in AeroVironment on January 26, 2024 and sell it today you would earn a total of  7,705  from holding AeroVironment or generate 94.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	43.52%
Values	Daily Returns

GFL Environmental  vs.  AeroVironment

GFL Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GFL Environmental has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, GFL Environmental is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

AeroVironment

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AeroVironment are ranked lower than 9 (%) 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 GFL Environmental and AeroVironment

The main advantage of trading using opposite GFL Environmental and AeroVironment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GFL Environmental 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 GFL Environmental 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.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.