Correlation Between BAE Systems and Thales SA

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

Diversification Opportunities for BAE Systems and Thales SA

0.58

Correlation Coefficient

BAE Systems  Thales SA

Very weak diversification

The 3 months correlation between BAE and Thales is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Thales SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thales SA 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 Thales SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thales SA has no effect on the direction of BAE Systems i.e., BAE Systems and Thales SA go up and down completely randomly.

Pair Corralation between BAE Systems and Thales SA

Assuming the 90 days horizon BAE Systems PLC is expected to generate 1.23 times more return on investment than Thales SA. However, BAE Systems is 1.23 times more volatile than Thales SA. It trades about -0.05 of its potential returns per unit of risk. Thales SA is currently generating about -0.07 per unit of risk. If you would invest  6,788  in BAE Systems PLC on September 5, 2024 and sell it today you would lose (403.00) from holding BAE Systems PLC or give up 5.94% of portfolio value over 90 days.

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

BAE Systems PLC  vs.  Thales SA

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 fairly strong basic indicators, BAE Systems is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Thales SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thales SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with BAE Systems and Thales SA

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

The idea behind BAE Systems PLC and Thales SA 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.