Correlation Between BAE Systems and Park Electrochemical

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

Diversification Opportunities for BAE Systems and Park Electrochemical

0.01

Correlation Coefficient

BAE Systems  Park Electrochemical

Significant diversification

The 3 months correlation between BAE and Park is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Park Electrochemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Electrochemical 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 Park Electrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Electrochemical has no effect on the direction of BAE Systems i.e., BAE Systems and Park Electrochemical go up and down completely randomly.

Pair Corralation between BAE Systems and Park Electrochemical

Assuming the 90 days horizon BAE Systems PLC is expected to under-perform the Park Electrochemical. But the pink sheet apears to be less risky and, when comparing its historical volatility, BAE Systems PLC is 1.15 times less risky than Park Electrochemical. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Park Electrochemical is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,326  in Park Electrochemical on September 3, 2024 and sell it today you would earn a total of  205.00  from holding Park Electrochemical or generate 15.46% return on investment over 90 days.

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

BAE Systems PLC  vs.  Park Electrochemical

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.

Park Electrochemical

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Park Electrochemical are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, Park Electrochemical exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BAE Systems and Park Electrochemical

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

The idea behind BAE Systems PLC and Park Electrochemical 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.