Correlation Between Sembcorp Marine and BAE Systems
Can any of the company-specific risk be diversified away by investing in both Sembcorp Marine 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 Sembcorp Marine and BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sembcorp Marine and BAE Systems PLC, you can compare the effects of market volatilities on Sembcorp Marine 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 Sembcorp Marine with a short position of BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sembcorp Marine and BAE Systems.
Diversification Opportunities for Sembcorp Marine and BAE Systems
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Sembcorp and BAE is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Sembcorp Marine 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 Sembcorp Marine 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 Sembcorp Marine 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 Sembcorp Marine i.e., Sembcorp Marine and BAE Systems go up and down completely randomly.
Pair Corralation between Sembcorp Marine and BAE Systems
Assuming the 90 days horizon Sembcorp Marine is expected to under-perform the BAE Systems. In addition to that, Sembcorp Marine is 1.09 times more volatile than BAE Systems PLC. It trades about -0.31 of its total potential returns per unit of risk. BAE Systems PLC is currently generating about 0.05 per unit of volatility. If you would invest 2,155 in BAE Systems PLC on January 13, 2025 and sell it today you would earn a total of 45.00 from holding BAE Systems PLC or generate 2.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sembcorp Marine vs. BAE Systems PLC
Performance |
| Timeline |
| Sembcorp Marine |
| BAE Systems PLC |
Sembcorp Marine and BAE Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sembcorp Marine and BAE Systems
The main advantage of trading using opposite Sembcorp Marine and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sembcorp Marine 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.| Sembcorp Marine vs. Airbus Group NV | Sembcorp Marine vs. Park Electrochemical | Sembcorp Marine vs. Rolls Royce Holdings PLC | Sembcorp Marine vs. Triumph Group |
| 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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