Correlation Between Rolls Royce and BAE Systems
Can any of the company-specific risk be diversified away by investing in both Rolls Royce 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 Rolls Royce and BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rolls Royce Holdings and BAE Systems PLC, you can compare the effects of market volatilities on Rolls Royce 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 Rolls Royce with a short position of BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rolls Royce and BAE Systems.
Diversification Opportunities for Rolls Royce and BAE Systems
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Rolls and BAE is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Rolls Royce Holdings 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 Rolls Royce 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 Rolls Royce Holdings 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 Rolls Royce i.e., Rolls Royce and BAE Systems go up and down completely randomly.
Pair Corralation between Rolls Royce and BAE Systems
Assuming the 90 days horizon Rolls Royce Holdings is expected to generate 1.49 times more return on investment than BAE Systems. However, Rolls Royce is 1.49 times more volatile than BAE Systems PLC. It trades about 0.16 of its potential returns per unit of risk. BAE Systems PLC is currently generating about 0.07 per unit of risk. If you would invest 110.00 in Rolls Royce Holdings on August 29, 2024 and sell it today you would earn a total of 573.00 from holding Rolls Royce Holdings or generate 520.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Rolls Royce Holdings vs. BAE Systems PLC
Performance |
| Timeline |
| Rolls Royce Holdings |
| BAE Systems PLC |
Rolls Royce and BAE Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rolls Royce and BAE Systems
The main advantage of trading using opposite Rolls Royce and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rolls Royce 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.| Rolls Royce vs. Eve Holding | Rolls Royce vs. Rolls Royce Holdings PLC | Rolls Royce vs. Sembcorp Marine | Rolls Royce vs. HEICO |
| BAE Systems vs. Huntington Ingalls Industries | BAE Systems vs. Rheinmetall AG ADR | BAE Systems vs. Airbus Group NV | BAE Systems vs. General Dynamics |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
Other Complementary Tools
| Top Crypto Exchanges Search and analyze digital assets across top global cryptocurrency exchanges | |
| Technical Analysis Check basic technical indicators and analysis based on most latest market data | |
| Instant Ratings Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
| Sign In To Macroaxis Sign in to explore Macroaxis' wealth optimization platform and fintech modules |