Correlation Between Zegona Communications and BAE Systems

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

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

Diversification Opportunities for Zegona Communications and BAE Systems

-0.19

Correlation Coefficient

Zegona Communications  BAE Systems

Good diversification

The 3 months correlation between Zegona and BAE is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Zegona Communications Plc 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 Zegona Communications 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 Zegona Communications Plc 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 Zegona Communications i.e., Zegona Communications and BAE Systems go up and down completely randomly.

Pair Corralation between Zegona Communications and BAE Systems

Assuming the 90 days trading horizon Zegona Communications Plc is expected to generate 12.37 times more return on investment than BAE Systems. However, Zegona Communications is 12.37 times more volatile than BAE Systems plc. It trades about 0.05 of its potential returns per unit of risk. BAE Systems plc is currently generating about 0.06 per unit of risk. If you would invest  7,950  in Zegona Communications Plc on September 20, 2024 and sell it today you would earn a total of  23,450  from holding Zegona Communications Plc or generate 294.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	92.61%
Values	Daily Returns

Zegona Communications Plc  vs.  BAE Systems plc

Zegona Communications Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zegona Communications Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 rather sound basic indicators, BAE Systems is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Zegona Communications and BAE Systems

The main advantage of trading using opposite Zegona Communications and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zegona Communications 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 Zegona Communications Plc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.