Correlation Between BAE Systems and SoftBank Group

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

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

Diversification Opportunities for BAE Systems and SoftBank Group

-0.21

Correlation Coefficient

BAE Systems  SoftBank Group

Very good diversification

The 3 months correlation between BAE and SoftBank is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems plc and SoftBank Group Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoftBank Group Corp and BAE Systems 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 BAE Systems plc are associated (or correlated) with SoftBank Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoftBank Group Corp has no effect on the direction of BAE Systems i.e., BAE Systems and SoftBank Group go up and down completely randomly.

Pair Corralation between BAE Systems and SoftBank Group

Assuming the 90 days trading horizon BAE Systems plc is expected to under-perform the SoftBank Group. But the stock apears to be less risky and, when comparing its historical volatility, BAE Systems plc is 1.52 times less risky than SoftBank Group. The stock trades about -0.07 of its potential returns per unit of risk. The SoftBank Group Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  832,535  in SoftBank Group Corp on September 19, 2024 and sell it today you would earn a total of  120,165  from holding SoftBank Group Corp or generate 14.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	66.15%
Values	Daily Returns

BAE Systems plc  vs.  SoftBank Group Corp

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 latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

SoftBank Group Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SoftBank Group Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SoftBank Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BAE Systems and SoftBank Group

The main advantage of trading using opposite BAE Systems and SoftBank Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAE Systems position performs unexpectedly, SoftBank Group 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 SoftBank Group will offset losses from the drop in SoftBank Group's long position.

The idea behind BAE Systems plc and SoftBank Group Corp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.