Correlation Between GoldMining and BAE Systems

Can any of the company-specific risk be diversified away by investing in both GoldMining 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 GoldMining and BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GoldMining and BAE Systems plc, you can compare the effects of market volatilities on GoldMining 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 GoldMining with a short position of BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of GoldMining and BAE Systems.

Diversification Opportunities for GoldMining and BAE Systems

0.61

Correlation Coefficient

GoldMining  BAE Systems

Poor diversification

The 3 months correlation between GoldMining and BAE is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding GoldMining 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 GoldMining 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 GoldMining 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 GoldMining i.e., GoldMining and BAE Systems go up and down completely randomly.

Pair Corralation between GoldMining and BAE Systems

Assuming the 90 days trading horizon GoldMining is expected to under-perform the BAE Systems. In addition to that, GoldMining is 1.54 times more volatile than BAE Systems plc. It trades about -0.07 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  123,085  in BAE Systems plc on September 26, 2024 and sell it today you would lose (7,235) from holding BAE Systems plc or give up 5.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	70.77%
Values	Daily Returns

GoldMining  vs.  BAE Systems plc

GoldMining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GoldMining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

BAE Systems plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BAE Systems plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, BAE Systems is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GoldMining and BAE Systems

The main advantage of trading using opposite GoldMining and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GoldMining 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 GoldMining 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.