Correlation Between BAE Systems and State Bank

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

Diversification Opportunities for BAE Systems and State Bank

-0.21

Correlation Coefficient

BAE Systems  State Bank

Very good diversification

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

Pair Corralation between BAE Systems and State Bank

Assuming the 90 days trading horizon BAE Systems plc is expected to under-perform the State Bank. In addition to that, BAE Systems is 1.14 times more volatile than State Bank of. It trades about -0.07 of its total potential returns per unit of risk. State Bank of is currently generating about 0.05 per unit of volatility. If you would invest  9,500  in State Bank of on September 19, 2024 and sell it today you would earn a total of  390.00  from holding State Bank of or generate 4.11% return on investment over 90 days.

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

BAE Systems plc  vs.  State Bank of

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.

State Bank

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in State Bank of are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, State Bank is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BAE Systems and State Bank

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

The idea behind BAE Systems plc and State Bank of 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.