Correlation Between BAE Systems and Sealed Air

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

Diversification Opportunities for BAE Systems and Sealed Air

-0.31

Correlation Coefficient

BAE Systems  Sealed Air

Very good diversification

The 3 months correlation between BAE and Sealed is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems plc and Sealed Air Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sealed Air Corp 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 Sealed Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sealed Air Corp has no effect on the direction of BAE Systems i.e., BAE Systems and Sealed Air go up and down completely randomly.

Pair Corralation between BAE Systems and Sealed Air

Assuming the 90 days trading horizon BAE Systems plc is expected to generate 0.69 times more return on investment than Sealed Air. However, BAE Systems plc is 1.45 times less risky than Sealed Air. It trades about 0.08 of its potential returns per unit of risk. Sealed Air Corp is currently generating about -0.01 per unit of risk. If you would invest  91,634  in BAE Systems plc on December 5, 2024 and sell it today you would earn a total of  65,316  from holding BAE Systems plc or generate 71.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	87.95%
Values	Daily Returns

BAE Systems plc  vs.  Sealed Air Corp

BAE Systems plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BAE Systems plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, BAE Systems exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sealed Air Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sealed Air Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with BAE Systems and Sealed Air

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

The idea behind BAE Systems plc and Sealed Air Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.