Correlation Between Rheinmetall and BAE Systems
Can any of the company-specific risk be diversified away by investing in both Rheinmetall 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 Rheinmetall and BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rheinmetall AG and BAE Systems PLC, you can compare the effects of market volatilities on Rheinmetall 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 Rheinmetall with a short position of BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rheinmetall and BAE Systems.
Diversification Opportunities for Rheinmetall and BAE Systems
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between Rheinmetall and BAE is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Rheinmetall AG 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 Rheinmetall 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 Rheinmetall AG 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 Rheinmetall i.e., Rheinmetall and BAE Systems go up and down completely randomly.
Pair Corralation between Rheinmetall and BAE Systems
Assuming the 90 days horizon Rheinmetall AG is expected to generate 1.32 times more return on investment than BAE Systems. However, Rheinmetall is 1.32 times more volatile than BAE Systems PLC. It trades about 0.45 of its potential returns per unit of risk. BAE Systems PLC is currently generating about -0.01 per unit of risk. If you would invest 50,280 in Rheinmetall AG on September 4, 2024 and sell it today you would earn a total of 15,870 from holding Rheinmetall AG or generate 31.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rheinmetall AG vs. BAE Systems PLC
Performance |
| Timeline |
| Rheinmetall AG |
| BAE Systems PLC |
Rheinmetall and BAE Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rheinmetall and BAE Systems
The main advantage of trading using opposite Rheinmetall and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rheinmetall 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.| Rheinmetall vs. Lockheed Martin | Rheinmetall vs. BAE Systems PLC | Rheinmetall vs. Qinetiq Group PLC | Rheinmetall vs. Leonardo SpA ADR |
| 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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