Correlation Between BAE Systems and Lilium Equity

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

Diversification Opportunities for BAE Systems and Lilium Equity

0.35

Correlation Coefficient

BAE Systems  Lilium Equity

Weak diversification

The 3 months correlation between BAE and Lilium is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Lilium Equity Warrants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lilium Equity Warrants 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 Lilium Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lilium Equity Warrants has no effect on the direction of BAE Systems i.e., BAE Systems and Lilium Equity go up and down completely randomly.

Pair Corralation between BAE Systems and Lilium Equity

Assuming the 90 days horizon BAE Systems PLC is expected to generate 0.09 times more return on investment than Lilium Equity. However, BAE Systems PLC is 10.8 times less risky than Lilium Equity. It trades about -0.07 of its potential returns per unit of risk. Lilium Equity Warrants is currently generating about -0.15 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	75.0%
Values	Daily Returns

BAE Systems PLC  vs.  Lilium Equity Warrants

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.

Lilium Equity Warrants

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lilium Equity Warrants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with BAE Systems and Lilium Equity

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

The idea behind BAE Systems PLC and Lilium Equity Warrants 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.