Correlation Between Eve Holding and BAE Systems

Can any of the company-specific risk be diversified away by investing in both Eve Holding and BAE Systems 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 Eve Holding and BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eve Holding and BAE Systems PLC, you can compare the effects of market volatilities on Eve Holding and BAE Systems 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 Eve Holding with a short position of BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eve Holding and BAE Systems.

Diversification Opportunities for Eve Holding and BAE Systems

-0.51

Correlation Coefficient

Eve Holding  BAE Systems

Excellent diversification

The 3 months correlation between Eve and BAE is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Eve Holding and BAE Systems PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAE Systems PLC and Eve Holding 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 Eve Holding are associated (or correlated) with BAE Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAE Systems PLC has no effect on the direction of Eve Holding i.e., Eve Holding and BAE Systems go up and down completely randomly.

Pair Corralation between Eve Holding and BAE Systems

Given the investment horizon of 90 days Eve Holding is expected to generate 1.51 times more return on investment than BAE Systems. However, Eve Holding is 1.51 times more volatile than BAE Systems PLC. It trades about 0.21 of its potential returns per unit of risk. BAE Systems PLC is currently generating about -0.07 per unit of risk. If you would invest  281.00  in Eve Holding on September 12, 2024 and sell it today you would earn a total of  171.00  from holding Eve Holding or generate 60.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Eve Holding  vs.  BAE Systems PLC

Eve Holding

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eve Holding are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent technical and fundamental indicators, Eve Holding showed solid returns over the last few months and may actually be approaching a breakup point.

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. Despite latest inconsistent performance, the Stock's basic 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 Eve Holding and BAE Systems

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

The idea behind Eve Holding and BAE Systems PLC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.