Correlation Between Dow Jones and BAE Systems
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and BAE Systems PLC, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and BAE Systems.
Diversification Opportunities for Dow Jones and BAE Systems
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and BAE is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial 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 Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and BAE Systems go up and down completely randomly.
Pair Corralation between Dow Jones and BAE Systems
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.41 times less return on investment than BAE Systems. But when comparing it to its historical volatility, Dow Jones Industrial is 1.99 times less risky than BAE Systems. It trades about 0.09 of its potential returns per unit of risk. BAE Systems PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 4,131 in BAE Systems PLC on November 19, 2024 and sell it today you would earn a total of 2,059 from holding BAE Systems PLC or generate 49.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Dow Jones Industrial vs. BAE Systems PLC
Performance |
| Timeline |
Dow Jones and BAE Systems Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
BAE Systems PLC
Pair trading matchups for BAE Systems
Pair Trading with Dow Jones and BAE Systems
The main advantage of trading using opposite Dow Jones and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. National CineMedia | Dow Jones vs. Emerson Radio | Dow Jones vs. Space Communication | Dow Jones vs. JD Sports Fashion |
| BAE Systems vs. Leonardo Spa | BAE Systems vs. QinetiQ Group plc | BAE Systems vs. Leonardo SpA ADR | BAE Systems vs. Huntington Ingalls Industries |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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