Correlation Between BAE Systems and Huntington Ingalls

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

Diversification Opportunities for BAE Systems and Huntington Ingalls

0.26

Correlation Coefficient

BAE Systems  Huntington Ingalls

Modest diversification

The 3 months correlation between BAE and Huntington is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Huntington Ingalls Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Huntington Ingalls 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 Huntington Ingalls. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Huntington Ingalls has no effect on the direction of BAE Systems i.e., BAE Systems and Huntington Ingalls go up and down completely randomly.

Pair Corralation between BAE Systems and Huntington Ingalls

Assuming the 90 days horizon BAE Systems PLC is expected to generate 0.49 times more return on investment than Huntington Ingalls. However, BAE Systems PLC is 2.05 times less risky than Huntington Ingalls. It trades about -0.07 of its potential returns per unit of risk. Huntington Ingalls Industries is currently generating about -0.12 per unit of risk. If you would invest  6,796  in BAE Systems PLC on September 3, 2024 and sell it today you would lose (552.00) from holding BAE Systems PLC or give up 8.12% of portfolio value over 90 days.

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

BAE Systems PLC  vs.  Huntington Ingalls Industries

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 fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Huntington Ingalls

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huntington Ingalls Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with BAE Systems and Huntington Ingalls

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

The idea behind BAE Systems PLC and Huntington Ingalls Industries 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.