Correlation Between Airbus Group and BAE Systems

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Can any of the company-specific risk be diversified away by investing in both Airbus Group 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 Airbus Group and BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Airbus Group SE and BAE Systems PLC, you can compare the effects of market volatilities on Airbus Group 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 Airbus Group with a short position of BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Airbus Group and BAE Systems.

Diversification Opportunities for Airbus Group and BAE Systems

0.18
  Correlation Coefficient

Average diversification

The 3 months correlation between Airbus and BAE is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Airbus Group SE 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 Airbus Group 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 Airbus Group SE 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 Airbus Group i.e., Airbus Group and BAE Systems go up and down completely randomly.

Pair Corralation between Airbus Group and BAE Systems

Assuming the 90 days horizon Airbus Group SE is expected to under-perform the BAE Systems. But the pink sheet apears to be less risky and, when comparing its historical volatility, Airbus Group SE is 1.14 times less risky than BAE Systems. The pink sheet trades about -0.04 of its potential returns per unit of risk. The BAE Systems PLC is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,746  in BAE Systems PLC on August 28, 2024 and sell it today you would lose (82.00) from holding BAE Systems PLC or give up 4.7% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Airbus Group SE  vs.  BAE Systems PLC

 Performance 
       Timeline  
Airbus Group SE 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Airbus Group SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Airbus Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
BAE Systems PLC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BAE Systems PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BAE Systems is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Airbus Group and BAE Systems Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Airbus Group and BAE Systems

The main advantage of trading using opposite Airbus Group and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Airbus Group 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.
The idea behind Airbus Group SE and BAE Systems PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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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