Correlation Between AeroVironment and BAE Systems
Can any of the company-specific risk be diversified away by investing in both AeroVironment and BAE Systems 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 AeroVironment and BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between AeroVironment and BAE Systems PLC, you can compare the effects of market volatilities on AeroVironment and BAE Systems 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 AeroVironment with a short position of BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of AeroVironment and BAE Systems.
Diversification Opportunities for AeroVironment and BAE Systems
0.1 | Correlation Coefficient |
Average diversification
The 3 months correlation between AeroVironment and BAE is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding AeroVironment and BAE Systems PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAE Systems PLC and AeroVironment 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 AeroVironment are associated (or correlated) with BAE Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAE Systems PLC has no effect on the direction of AeroVironment i.e., AeroVironment and BAE Systems go up and down completely randomly.
Pair Corralation between AeroVironment and BAE Systems
Given the investment horizon of 90 days AeroVironment is expected to generate 1.64 times more return on investment than BAE Systems. However, AeroVironment is 1.64 times more volatile than BAE Systems PLC. It trades about 0.07 of its potential returns per unit of risk. BAE Systems PLC is currently generating about 0.05 per unit of risk. If you would invest 12,393 in AeroVironment on September 2, 2024 and sell it today you would earn a total of 7,057 from holding AeroVironment or generate 56.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
AeroVironment vs. BAE Systems PLC
Performance |
| Timeline |
| AeroVironment |
| BAE Systems PLC |
AeroVironment and BAE Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with AeroVironment and BAE Systems
The main advantage of trading using opposite AeroVironment and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AeroVironment position performs unexpectedly, BAE Systems 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 BAE Systems will offset losses from the drop in BAE Systems' long position.| AeroVironment vs. Archer Aviation | AeroVironment vs. Rocket Lab USA | AeroVironment vs. Lilium NV | AeroVironment vs. HEICO |
| BAE Systems vs. Huntington Ingalls Industries | BAE Systems vs. Rheinmetall AG ADR | BAE Systems vs. Airbus Group NV | BAE Systems vs. General Dynamics |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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