Correlation Between BAE Systems and Hyundai

Can any of the company-specific risk be diversified away by investing in both BAE Systems and Hyundai 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 Hyundai 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 Hyundai Motor, you can compare the effects of market volatilities on BAE Systems and Hyundai 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 Hyundai. Check out your portfolio center. Please also check ongoing floating volatility patterns of BAE Systems and Hyundai.

Diversification Opportunities for BAE Systems and Hyundai

0.02

Correlation Coefficient

BAE Systems  Hyundai

Significant diversification

The 3 months correlation between BAE and Hyundai is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems plc and Hyundai Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Motor 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 Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Motor has no effect on the direction of BAE Systems i.e., BAE Systems and Hyundai go up and down completely randomly.

Pair Corralation between BAE Systems and Hyundai

Assuming the 90 days trading horizon BAE Systems plc is expected to generate 0.72 times more return on investment than Hyundai. However, BAE Systems plc is 1.38 times less risky than Hyundai. It trades about -0.07 of its potential returns per unit of risk. Hyundai Motor is currently generating about -0.14 per unit of risk. If you would invest  127,890  in BAE Systems plc on September 19, 2024 and sell it today you would lose (10,890) from holding BAE Systems plc or give up 8.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BAE Systems plc  vs.  Hyundai Motor

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.

Hyundai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with BAE Systems and Hyundai

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

The idea behind BAE Systems plc and Hyundai Motor 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.