Correlation Between BAE Systems and Leonardo SpA
Can any of the company-specific risk be diversified away by investing in both BAE Systems and Leonardo SpA 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 Leonardo SpA 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 Leonardo SpA ADR, you can compare the effects of market volatilities on BAE Systems and Leonardo SpA 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 Leonardo SpA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BAE Systems and Leonardo SpA.
Diversification Opportunities for BAE Systems and Leonardo SpA
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between BAE and Leonardo is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Leonardo SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leonardo SpA ADR 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 Leonardo SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leonardo SpA ADR has no effect on the direction of BAE Systems i.e., BAE Systems and Leonardo SpA go up and down completely randomly.
Pair Corralation between BAE Systems and Leonardo SpA
Assuming the 90 days horizon BAE Systems PLC is expected to under-perform the Leonardo SpA. In addition to that, BAE Systems is 1.17 times more volatile than Leonardo SpA ADR. It trades about -0.01 of its total potential returns per unit of risk. Leonardo SpA ADR is currently generating about 0.36 per unit of volatility. If you would invest 1,177 in Leonardo SpA ADR on September 5, 2024 and sell it today you would earn a total of 187.00 from holding Leonardo SpA ADR or generate 15.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BAE Systems PLC vs. Leonardo SpA ADR
Performance |
| Timeline |
| BAE Systems PLC |
| Leonardo SpA ADR |
BAE Systems and Leonardo SpA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BAE Systems and Leonardo SpA
The main advantage of trading using opposite BAE Systems and Leonardo SpA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAE Systems position performs unexpectedly, Leonardo SpA 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 Leonardo SpA will offset losses from the drop in Leonardo SpA's long position.| BAE Systems vs. Leonardo Spa | BAE Systems vs. QinetiQ Group plc | BAE Systems vs. Leonardo SpA ADR | BAE Systems vs. Huntington Ingalls Industries |
| Leonardo SpA vs. Leonardo Spa | Leonardo SpA vs. Thales SA ADR | Leonardo SpA vs. Safran SA | Leonardo SpA vs. Rheinmetall AG ADR |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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