Correlation Between BAE Systems and Park Electrochemical
Can any of the company-specific risk be diversified away by investing in both BAE Systems and Park Electrochemical 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 Park Electrochemical 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 Park Electrochemical, you can compare the effects of market volatilities on BAE Systems and Park Electrochemical 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 Park Electrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of BAE Systems and Park Electrochemical.
Diversification Opportunities for BAE Systems and Park Electrochemical
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between BAE and Park is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical 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 Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of BAE Systems i.e., BAE Systems and Park Electrochemical go up and down completely randomly.
Pair Corralation between BAE Systems and Park Electrochemical
Assuming the 90 days horizon BAE Systems PLC is expected to generate 0.93 times more return on investment than Park Electrochemical. However, BAE Systems PLC is 1.07 times less risky than Park Electrochemical. It trades about 0.05 of its potential returns per unit of risk. Park Electrochemical is currently generating about 0.03 per unit of risk. If you would invest 1,185 in BAE Systems PLC on August 24, 2024 and sell it today you would earn a total of 451.00 from holding BAE Systems PLC or generate 38.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
BAE Systems PLC vs. Park Electrochemical
Performance |
| Timeline |
| BAE Systems PLC |
| Park Electrochemical |
BAE Systems and Park Electrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BAE Systems and Park Electrochemical
The main advantage of trading using opposite BAE Systems and Park Electrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAE Systems position performs unexpectedly, Park Electrochemical 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 Park Electrochemical will offset losses from the drop in Park Electrochemical's 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 |
| Park Electrochemical vs. Innovative Solutions and | Park Electrochemical vs. VSE Corporation | Park Electrochemical vs. Curtiss Wright | Park Electrochemical vs. Ducommun Incorporated |
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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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