Correlation Between BAE Systems and Mercury Systems
Can any of the company-specific risk be diversified away by investing in both BAE Systems and Mercury 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 BAE Systems and Mercury Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BAE Systems PLC and Mercury Systems, you can compare the effects of market volatilities on BAE Systems and Mercury 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 BAE Systems with a short position of Mercury Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of BAE Systems and Mercury Systems.
Diversification Opportunities for BAE Systems and Mercury Systems
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BAE and Mercury is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Mercury Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercury Systems and BAE 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 BAE Systems PLC are associated (or correlated) with Mercury Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercury Systems has no effect on the direction of BAE Systems i.e., BAE Systems and Mercury Systems go up and down completely randomly.
Pair Corralation between BAE Systems and Mercury Systems
Assuming the 90 days horizon BAE Systems PLC is expected to under-perform the Mercury Systems. But the pink sheet apears to be less risky and, when comparing its historical volatility, BAE Systems PLC is 1.96 times less risky than Mercury Systems. The pink sheet trades about -0.03 of its potential returns per unit of risk. The Mercury Systems is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 3,380 in Mercury Systems on August 24, 2024 and sell it today you would earn a total of 618.00 from holding Mercury Systems or generate 18.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BAE Systems PLC vs. Mercury Systems
Performance |
| Timeline |
| BAE Systems PLC |
| Mercury Systems |
BAE Systems and Mercury Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BAE Systems and Mercury Systems
The main advantage of trading using opposite BAE Systems and Mercury Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAE Systems position performs unexpectedly, Mercury 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 Mercury Systems will offset losses from the drop in Mercury Systems' long position.| BAE Systems vs. Huntington Ingalls Industries | BAE Systems vs. Rheinmetall AG ADR | BAE Systems vs. Airbus Group NV | BAE Systems vs. General Dynamics |
| Mercury Systems vs. Curtiss Wright | Mercury Systems vs. Hexcel | Mercury Systems vs. Ducommun Incorporated | Mercury Systems vs. Woodward |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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